What's Next for Dell: Bloomberg West (07/12)

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July 12 (Bloomberg) -- On today's "Bloomberg West" the focus is on innovation, technology, media and the future of business. Hosted by Emily Chang with Editor-at-Large Cory Johnson and Senior Correspondent Jon Erlichman f12om Bloomberg's San Francisco studio, it showcases the personalities, companies and trends that are transforming the global economy. (Source: Bloomberg)

Live from pier three in san francisco, welcome to the late addition of "bloomberg west." we club or the global media and technology companies that are shaping our world.

Our focus, innovation, technology and the future of business.

Let's get to the rundown.

The new hulu owner is hulu.

Ceo bob eiger tells us that he thinks the future of the video side is too bright to let it go.

At&t going downstream, jumping into the prepaid cell market.

Boeing's dreamliner nightmare.

Just months after getting cleared to return to the skies,two jets had major problems today.

One even shutting down london's heathrow airport.

First, to the lead.

The conference in sun valley is known for dealmaking.

This year the big news is a dead deal.

Disney, 21st century fox, nbc universal have done an about- face and decided to not sell hulu after all.

An additional 700 filling -- 750 million dollars of cash will be pumped into the company.

Hulu was a hot property.

For the latest, let's head to jon erlichman out in sun valley, idaho.

You talk to disney ceo bob eiger as the news broke about why disney's holding onto hulu.


It's pretty amazing.

If you think about the history of this conference, a couple of years ago hulu was up for sale and the owners decided not to sell.

This week everybody could not stop talking about a hulu deal and they end up keeping it.

We have gotten some feedback from some of the potential buyers who are frustrated.

They spent about a month trying to get the deal done.

The ceo realizing that they want to own this.

In my conversation along with other reporters with eiger about why they would keep hulu, here is what he said.

Throughout the process, we continue to give consideration to strategic value of hulu and to its potential in terms of investment value long-term.

The interests of news corp.

And disney galvanized during the process about that and we ultimately concluded that even though we had some compelling offers on the table, the future of hulu is bright.

We should hold onto it.

In terms of working together as a group, if there were issues in the past, did you talk at all about that, the combined vision going forward?

We did.

Not necessarily about the past.

We wanted to make sure that as we look forward, that we relied in terms of a -- we were allied in terms of a strategic vision.

Once we concluded we were aligned and we focused on long- term potential and value, we decided it would be in the best interest of the companies that owned it to keep it.

We decided we would infuse it with the capital necessary to grow it significantly and aggressively . and thus the decision to ultimately invest $750 million.

Was the deal just not good enough?

This has nothing to do with the offers that were on the table.

They were quite compelling.

When we compared them with what we saw the future to be potentially, we decided that particularly because we were inclined -- aligned in vision that it would be smarter to stay in.

There was no disappointment with the process.

They were good, solid, generous offers.

Just trying to continue to focus on what this could become.

Could you expand on the $750 million.

You give us an idea on where that money will go?

People, technology tom and content.

-- technology, and content.

The success of hulu has been largely the result of real talent, the technology platform that created it, including the user interface, and the content available.

By attracting and continuing to attract great people , and making sure that we have that great technology, which includes a fine user interface, and investing in content that people want.

This could really turn out to be something big.

Having that supported model, are there issues -- we don't have any differences in strategic thinking.

There are no differences among the partners about the direction of hulu.

Two years ago we went through this and just went through it again.

Will we see this again in two years?


you are solid on this now?

Very solid on this.

The future of hulu is quite bright.

We're excited about it.

It's interesting to hear some of the discussions at this conference.

You hear about amazon, apple, netflix.

All mentioned in the same breath.

That says something, doesn't it?

Jason tyler left.

You have an interim ceo.

Any thoughts on the future leadership at hulu?

I don't want to make any comments about future leadership.

We intend to attract great talent and investing great technology and make sure it has got the content that can power us into the future.

With that announcement made on all the big shots and technology media out there, i wonder what people had to say besides iger.

As far as some of the other players involved, we asked james murdoch for comment.

He declined, as did jim jin opelousas of fox.

As for some of the other attendees we got some colorful answers, including from barry diller while he was on his bike.

What did you think?

I thought that's what they should have done in the first place.

No sale of hulu.

Any thoughts?

[laughter] i was about to give you one.

We were waiting for a hulu sale, and no sale.

Any thoughts?

[laughter] no hulu sale.

Doesn't affect me.

There you go, a few of the names.

For now, hulu remains hulu.

Buffett -- i'm such a buffett fan.

I've got to write that one down.

What was it,? you got it.

Great to have you on with the big news.

When we come back, the boeing 787 dreamliner hits rough air.

New questions about the future of that very high-tech plane.

? this is "bloomberg west." at&t agreed to buy leap wireless for $15 a share.

This gives him 4 million new customers and more spectrum.

We're bringing in senior markets correspondent julie hyman in new york for more on this.

We have a deal that gives at&t more customers.

Leap operates under the cricket ran name.

Those customers will be in that market.

As far as spectrum, the network covers about 96 million people in 35 states.

Also as part of this, there will be a contingent right to the net proceeds of sale of spectrum.

700 megahertz in chicago.

That was purchased last year for 200 million dollars.

At&t plans to turn around and sell it here.

15 bucks a share is what we are looking at, 88% higher than closing price today.

Shares have been rising recently.

There is been so much telecom consolidation this year.

Leap has really been left out up until now.

It is giving at&t 5 million subscribers.

Subscribers have been decreasing and the stock has been languishing, rising more recently on speculation that it would start to participate in all the consolidation.

$50 a share, the stock was at $6 a share.

Somebody made a lot of money on this.

The biggest holder is marc rich askey through his mhr management.

He is to work with carl icahn.

-- used to work with carl icahn.

John paulson is the third- largest holder here.

Rich askey controls a company with nearly 30% stake.

He turned down an offer back in 2007 that came from metro pcs.

The price then was $77.89 a share.

They could have made more several years ago.

Bulls make money, bears make money, pigs -- not so much.

Thank you very much, and julie hyman.

The future of the boeing 787 dreamliner is in question after two incidents.

An ethiopian caught fire while parked at london heathrow airport.

Thomson airways 787 going for manchester, england to florida had to return to england due to a technical problem.

This comes a couple months after the dreamliner was cleared to fly again, following a lengthy grounding over concerns that it's batteries could catch fire.

Joining us is the former inspector general for the u.s. transportation department.

She joins us from south carolina.

This is surprising.


One was in the air, one was on the ground.

What are we to make of this?

Fire problems are very serious and significant.

Those are the ones that will get the attention of the ntsb and federal aviation administration.

The thomson airways incident is pretty typical for a new plane.

A lot of glitches and bugs.

The triple seven went through the same kind of work out period where they had to take care of bugs.

It could be as simple as a problem with a gauge or instrument.

There are many backups.

The fire problem is highly significant.

Everyone immediately assumes it might be a battery again.

The composite fuselage are scorched or bird.

There are two things that investigators will be looking at, sourcefire and response of the composite plane to the fire and heat.

Where are the batteries in this plane?

Will that tell us something?

On first look, the batteries are under the plane, in the belly behind the wing.

The fire, at least the scorched pattern, is onto the top of the plane.

The thing that breaks the most on an airplane is the coffee maker in the galley.

At first i thought, maybe the coffee maker caught on fire.

However, the plane has been empty for many hours and no one was making coffee.

The ap you units -- apu unit was on the plane.

There could be wiring fires or a case of an overcharging battery, which would put boeing right back where they were before.

The repairs to the battery would apparently not have worked if it is the battery.

What did they nail the battery problem down to before?

The amount of technology and the wiring in these planes is hard to imagine.

Millions of miles of wiring.

That's the problem.

The ntsb did not come out with their final findings and recommendations.

The cause of the fire was not pinpointed.

Boeing separated the battery cells, give them more ventilation, more power to cool them down, and put a harder casing around them which boeing said would contain any heat, fire, fumes.

Any kind of runaway battery event, the housing should contain it.

They need to find out what happened.

Did the housing not contain it, was at the battery at all, or something else?

There have been lots of issues on planes passed concerning wiring.

We will have to wait and see.

It's possible something in the lounge as well.

I first thought, people think battery and overheating because of the fire.

Is the fire a bigger issue in this plane because it is all electric and because there is no manual way to fly this plane, the electric goes out in the plane is dead in the air?

No matter what the cause, whether it is a boeing dreamline r or dc-3, whenever you have a fire in a plane en route on a long-haul plane, there is no way to set it down.

The faa and ntsb get very excited over fire no matter what.

Because of the battery, you would lose control.

Because it is so heavily battery dependent, it is novelty.

That makes it wonderful and problematic.

It's a double-edged sword here.

Without these batteries it could not do all the wonderful things they can do.

Former inspector general, works for the department of education.

We really appreciate your time.

The flight for dell just got even more fierce -- fight for dell just got even more fierce.

? i'm cory johnson.

This is "bloomberg west." this morning carl icahn made good on the promise he made live on bloomberg tv yesterday.

Icahn told trish regan he would sweeten his $14 a share offer for dell.

A $20 war and added that.

His proposal now includes that warrant -- warrant added that.

His proposal now includes that warrant.

Joining us now is cristina alesci, our deals reporter.

Help me understand the new bed.

-- bit.

It increases pressure to up the bid.

Shareholders really see the merit in carl icahn's argument.

They think that michael dell and silverlake can and should pay for this company.

The problem is they have no sense -- the feeling there are too many assumptions baked into carl icahn's bid.

There is a publicly traded element to his bid.

It's not a take out the full company.

What they got today was more assumptions.

What he gave them was a free option to buy dell shares at $20 a share.

Those options only have value if dell stock goes about that $20 strike point.

Basically he's saying if the stock goes up, you will benefit but you have to keep your money on the table?


Throughout this whole ordeal, carl icahn has been asking shareholders to really remain long-term focused.

He also has introduced another negotiating tactic, which is asking that shareholders exercise what is called an appraisal rate.

That is when a delaware court actually determines the fair value of the company.

That is interesting because this could be a way to get a sense of how the vote is actually heading before the shareholder vote.

A vote to exercise -- if you exercise your appraisal right as a shareholder, it counts as a no vote for the michael dell silverlake deal.

If the votes start coming in and a lot of people start exercising their appraisal rights, that may put additional pressure on michael dell and silverlake to increase their bid before the shareholder vote.

This will be a good one.

Thank you very much.

With his new offer, what could come next?

Let's bring in the president of the clinton group and investment advisory firm in new york, cofounder of glass lewis research firm.

Great to see you.

What do you make of this battle over dell?

Which way do you think it will go?

I think the dell and silverlake proposal will ultimately be approved by shareholders.

As proxy advisory firms indicated this week, the icahn proposal to stay can and do so in the face of management and michael dell telling you that the road ahead is going to be rough , and i think people are going to take the quick money and go rather than a longer-term bet that carl icahn and the new management team they have never met and don't know who would be there are going to be able to fix what sound like daunting problems with the direction of dell.

It seems like the higher offer usually wins here, and icahn's offer probably is that.

It depends on how one does the math.

There is certainty with $13.65 from silverlake and for michael dell.

What you get from icahn is a wait for an annual meeting where you hope to replace the entire board followed by a financing transaction, followed by an option or a warrant that you have got to hope gets in the money over time.

There are a number of assumptions built in there, and uncertainty in the market for dell's products in the interim.

It may be a nominal higher dollar amount but on a risk- adjusted basis, $13.65 is pretty good.

Is there a legal precedent for bird in the hand beats to in the bush -- two in the bush?

Shareholders are certainly mindful of taking risk in the face of an opportunity to take cash and go.

Management buyouts are always difficult for shareholders.

One of two things almost always happens.

The ceo knows a lot more about the business and is right to be bullish about it and is willing to put his own capital on the line and buys it at a bargain from shareholders . those are the ones we worry about.

That is what carl icahn is worried about.

The other scenario is that the founder ceo is overly enthusiastic -- and cannot let go.

And believes it has a future when no one else does.

We have seen that ,too.

That maybe this case.

We're seeing something else of interest here.

A change in ftc rules about the way that firms can sell stock in their companies to credited investors.

Out here, people are talking about, this is great.

Entrepreneurs can raise money.

How are you looking at this?

I'm in the investment management business.

On the impact of this rule change for hedge funds and private equity firms, though the rule changed as it affects those entities is quite similar to the way it will affect other someone to raise money either into a fund or a company -- for 80 years we've had this strange rule.

It does not extend the first amendment to people running private equity firms and hedge funds.

You're not allowed to talk about your business, to go out and solicit interest in investing in that business.

It has really handicapped the ability of entrepreneurs to raise capital and the ability for hedge funds, venture capitalists and private equity firms to be transparent about their business and seek new capital.

I think this rule change is great and it brings a first amendment finally into this world.

We will see some big changes because of it.

I'm surprised by that, but i've always appreciated your opinion.

Think you for joining us.

Jon erlichman has been the last two days in sun valley, idaho, hanging out with the biggest names in tech and media.

What is coming up?

While bob geiger of disney said that hulu is no longer for sale, an industry veteran is not so sure.

That story coming up next.

? this is "bloomberg west." we focus on technology in the future of business.

Microsoft search engine bing gaining slightly in its battle with google.

Microsoft has 17.9% u.s. search share in june.

It gained half a percent from may.

Yahoo actually dipped despite marissa mayer's prescribed focus on search.

Google still the leader, but it's share was flat at 66.7%. microsoft suing the federal government accusing u.s. customs officials of refusing to enforce a ban on phones made by googles motorola mobility unit.

The ban was issued by the u.s. international trade commission last year after he ruled that the mobile devices infringed on a iker soft patent.

-- microsoft patent.

Best buy is holding ipad trade- in promotion today and tomorrow.

Customers who want to bring in the right that 2 or third- generation ipad will receive a gift card of at least $200 depending on the condition of the ipad.

The company had a successful iphone trade-in last month.

Our top stories, hulu owners today said the site will not be sold.

Bloomberg news has learned that it may be still open to outside investors.

Can the owners get along?

Bob johnson is skeptical.

Jon erlichman had a chance to stick to him in sun valley -- speak to him in sun valley.

What did he say?

He's got one of these great sun valley stories.

A few years back, he sold his bt for more than $2 million to viacom based on conversations he had here.

And yet hulu today was so definitive that they would not be sold, bob johnson on the other hand is a bit skeptical.

They're still for sale.

You have different owners with different opinions as to what this structure and role is.

In terms of what contents should and should not be available.

In a fast-moving industry such as the digital world of content, you can't have rule by committee.

You have to have a decisive entrepreneur with a supportive ownership moving forward.

They will be putting 750 million dollars into the business to help it grow long- term.

In a business like that, how should money like that be spent?

That's the issue.

It's not how the money should be spent.

It's an issue of how do they agree on how the money should be spent.

If you look at all the strong arch of her narrow companies -- entrepreneurial companies, they have found her - fo- founder vision and control.

Is there a price that would satisfy everyone and and the saga?

-- end the saga?

I don't know.

But when you look at where the industry is going, these brands are getting tremendous value . if you can grab one of those assets at a low price like $1 billion, you throw your hat in the ring.

If the guys are willing to sell it, you take it and then you put the 750 billion into it.

Ultimately hulu will be sold.

It's just not an institution that has the core direction that he needs from a unified management.

That was bt founder bob johnson with jon erlichman in sun valley.

Federal government quarterly turning to an internet service provider to help stop chinese cyber attacks.

? new details have emerged about how closely microsoft may have been working with the national security agency.

Edward snowden supplied documents to "the guardian" saying that iker soft helped the nsa get around its encryption so it could intercept web chats -- microsoft helped the nsa get around its encryption so it could intercept web chats.

We're going to bring in limburg reported -- bloomberg reporter jordan robertson.

Skype built itself as, this is encrypted communication.

We cannot even wiretapping itself.

-- wire tap itself.

These documents reveal the degree to which microsoft and over backwards to help the governments bypass that encryption and listen to phone calls and get the video for those phone calls as well.

We still don't have a sense of the scale of how many these were.

The company is insisting their individual case, they were only doing it as their name attached to it.

The newspaper suggests it is more without saying so.

We still don't have numbers.

The companies that have come out and given some numbers, tens of thousands of requests for user data.

If one request says, give us everything -- and in different programs, we saw this one amazing document that said to a business, give us everything.

What is remarkable is the degree to which microsoft had said if the government wants this data, we're going going to modify our products to allow them easier access.

Skype is the best example.

Talk to me about when this encryption happened, how it works, and white is so important to to see these messages before they are encrypted.

As a security reporter i advise people a lot.

If you want to protect your communications use encryption.

What we are referring to is if you want to protect your communications from hackers.

If you're in internet cafe you want to have in on your e-mail so the guy you're sitting next to cannot get access to it.

The company whose services you are using always has access to your information.

If the government asks him for it, they can supply it.

Encryption does not necessarily prevent the company from seeing it.

You'd have to add another layer of encryption on top of it.

Is it possible these programs always worked like this, that when the company said don't worry, it is encrypted before we can look at it, maybe it wasn't an there was always a methodology that allowed us to do this?

There may very well have been.

Microsoft is intimated in its statements that as it acquires products and modifies, it may make it easier for the government to access information.

They have all but said that when they acquire skype, they somehow modified it.

The guardian story says that skype intercepts have tripled since the microsoft acquisition.

Skype was traditionally a favorite of technology for hackers and journalists.

It was billed as a very secure technology.

It may have been difficult for outside hackers to get access to it but it is not unreasonable to assume that the companies that own this data have had access to it for a long time.

The guys on the business side are freaking out what is going to cost the business.

Jordan robertson, thank you very much.

Trying to stop cyber spying from china.

How did this reduce the amount of cyber spying at all?

The spring and achieve security officer at a cyber security firm who has published several reports on chinese hacking activity -- let's bring in a chief security officer at a cyber security firm who has published several reports on chinese hacking activity.

This is a fairly new program.

It's important to realize that the information direction here is from the government to isp's and consists of very specific information, namely the ip addresses of computers that the government excesses as being under the control of chinese -- assesses as being under the control of chinese hackers.

The isp can see that activity and potentially stop it.

The court says, these are the individuals, these are the computers, this is the problem, or is it a different methodology altogether?

This is completely separate.

This is the idea of the government to has some visibility into adversary activity, sharing specific threat intelligence to an isp for the purpose of trying to interject that activity and defend a customer.

Whether or not that is valuable is another question.

This has nothing to do with monitoring the activity, surveillance, or anything having to do with the latest disclosures.

What do you mean, it's another question?

Is it useless stuff anyway?

Information like this has some value.

It's mostly useful in a forensic manner when you want to say, have any of my computers been talking to these ip addresses.

If they have, there is a chance they are compromised and have been under someone else's control.

It is easy for an adversary to figure out and then change that information.

To abandon those computers that were taken over illegally, shift to new computers, and continue their hacking activity.

We constantly track this activity.

When we released the report in february we were watching a change from the set of indicators released to new indicators that nobody knew about.

The record is mixed about whether or not this actually works.

I'm thinking of drug dealers with burner phones where they have the device they are using to make their illicit deal and then getting rid of the device.

That's a very good analogy, except in this case, imagine that the phones have all been stolen from their legitimate users and the users don't necessarily even know that the phone is being used by a hacker.

Do we expect that this is -- the justice department is doing this, or whom?

From what i have read this is a dhs program.

Threat intelligence sharing with private sector is mostly run out of dhs.

There is been mention of the fbi as well.

The reason for fbi involvement is the fbi is responsible for counterintelligence in this country.

What if we seen in terms of activity from chinese hacking?

You guys have come out with groundbreaking stuff.

Really tying it to the chinese army.

Are we seeing this as a steady pace?

Where are we now?

The report we released, a pt -- apt 1, they decreased their activity, changed some of their actions, changed their online profiles right when we released the report within 48 hours.

Then they decrease some of the activity and in recent weeks have come back to regular levels.

This is one group out of dozens that we track.

The other groups continue their activity.

It's the same thing with other groups from russia or iran.

There has not been a dip in overall threat activity over the last six months.

Is there a threat to businesses here?

There can always be a threat, but is there a sense that they are really going after -- ties between government and business and technology are very strong.

I'm wondering if there is corporate spying going on here and if that is a threat to technology and businesses.

It is a tough time to be in business from the digital perspective.

There are plenty of gains to be made from exchanging information, but depending on industry are in, you have to worry about state-sponsored intruders, organized crime.

There are hacktivists you are looking to make a name for themselves or damage your brand.

-- who are looking to make a name for themselves or damage your brand.

I'd been in this industry for 15 years and never seen so much activity coming to the surface.

We are working 12 to 15 engagements a week but nobody hears about.

I think the business community has come to realize that.

So it's the tip of the iceberg, or the shark nato is out there?

There's a lot of activity going on.

Unless there is some mandatory requirement to disclose, as you might have with the loss of customer information, personally identifiable information, industry seeks to fix a problem, cooperate with law enforcement, and since many of these cases cannot really result in prosecution, it never sees the light of day.

Chief security officer, thank you for joining us.

We will talk with a digital advertising agency, a massive one making the online pitch more personal.

? will come back to "bloomberg west." advisory firm iss says risks remain in icahn's offer.

They're recommending that shareholders vote for the buyout by michael dell in silver lake but they will look at the deal a little bit more.

Changing gears.

Netflix and amazon give you personalized recommendations.

Comcast making sure that your online ads are tailored to your preferences with real-time ad auctions.

It is an amazing technology store here.

A big one going on behind the scenes you did not even know about.

Your business is huge.

How many data centers do you operate?

Close to 20. we rent the space, but all of the machines and software is our own.

How do you describe what we do?

We specialize in audience measurement and real-time advertising.

We have created a technology that can take massive amounts of information and use predictions about people's interests to make the advertising on the web more relevant.

How big is the data you are working with every millisecond?

As many as a million transactions per second.

The process at as much as 30 petabytes a day.

That is massive.

The real-time processing is distributed.

The data centers need to be where consumers are and where these advertising exchanges are which are conducting these auctions.

I think of "madmen" ad buying, and a guy in an office with a phone saying, we will take a couple of ads on "i love lucy" tonight.

You are talking about instant auctions like a stock market almost.

You have buyers and sellers instantly exchanging information as the page is rendered.

That's exactly right.

Many of the ads we see online today are auctioned in real- time.

There are tens of billions of these auctions every day.

Each one is resolved in 100 milliseconds or less with the highest bidder winning.

In advertising, you would look at basic demographic information, household wealth, male, female, age.

Are those still the metrics used?

Those are still important, especially for brand advertisers.

But you can do more than demographics.

We will work with the advertisers to understand what is distinctive about the types of customers that are finding their products and purchasing them.

Then we will build models that update in real-time to find other people that are similar.

Give me an example of what a certain user would look like to an advertiser?

A user will have a set of interests that are expressed based on a range of factors including the media they have consumed.

People could create hypotheses about what might be relevant.

Using artificial intelligence you have a way of systematically finding patents that are relevant -- patterns that are relevant.

Until today, i've never expressed a great interest in shark or movies -- horror movies.

Are the advertisers able to figure out that people like me are discovering this new interest and serve it ? exactly.

Data is being incorporated in real-time.

A consumer may find something relevant and that can be used to adjust the content delivered.

What do you mean by artificial intelligence?

Computer systems that can respond with some ingenuity of human decision-makers.

These auctions are occurring hundreds of thousands of times a second.

There's too much information into short a time for humans to make those decisions.

We are getting machines to make the sorts of decisions that people would make if we had enough people and most people could make decisions quickly enough.

No more noting your nielsen guidebook.

Thank you very much.

Stick around for the bwest byte.

? it's the bwest byte, one number we focus on the tells us a whole lot.

Joining me now -- i can't get the bike myself and i am not.

You've got a bwest byte.

We have a great one today.

387,000 . the number of tweets last night by viewers of shark note -- shark nato, the b-movie that appeared on the sci-fi channel.

It made a storm today.

Here is a clip of shark nato.

Is this a documentary?

It was not a documentary.

It was about a tornado hitting california.

A tornado full of man eating sharks.

Some of them were sought through with a change shop.

-- sawed through with a chain saw.

It has generated interest.

People want to have a sequel.

It goes to show the power of twitter when you have a cheesy thing that people catch on.

A great name like shark nato.

To be clear, this was fiction.

If he was going to happen somewhere, it would happen in l.a. i think it would happen right here behind us.

That is not funny.

[laughter] do you have a chainsaw?

We will keep that to a minimum.

That is not what happened to emily chang.

She had the day off.

There were no sharks involved.

We will review you the latest headlines, be they shark related or not.

We're going to keep monitoring the world for shark stories, technology stories -- tornado stories.

Thanks a lot.


This text has been automatically generated. It may not be 100% accurate.


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