Transcripts For CNBC Squawk On The Street 20160314

Unsolicited stakeover bid led by anbang insurance group. Well give you the latest. United airlines ceo back to work today but the activists are not cutting him slack. Whats ahead for munoz and the airline at large. Starwood is up sharply in premarket trading. They received a takeover proposal from chinas anbang insurance. Its worth about 75 a share in cash. The board of starwood says it is not changing its recommendation at this point and supports the companys planned merger with marriott, but they have a waiver from marriott that will allow them to negotiate until thursday. People familiar with the situation indicate the hope is they can hammer out a definitive agreement with anbang insurance, which has chris flowers, former investment banker people may have known. And primivera, not an old Italian Restaurant on the west side, but a large private equity firm in china. Some of these names may be unfamiliar, but the 76 a share all cash offer and that 5. 50 is a significant premium over the marriott deal. What will marriott choose to do . Will it choose to try to fight, to try to increase its current offer . And if it does so, would it largely do so with cash . Given the combined ownership of the company itself, a lot of that cash some would argue, 40 cents of each dollar would be coming from starwood in a way. Thats the question from marriott that it faces. They will say are the chinese real . Can they get the Regulatory Approvals . Yes, they are real. Its likely they will need a sifious review, National Security review. It seems unlikely theyll be able to go down a path that leads them to that being rejected. The waldorf astoria was bought by anbang, and, no, the president doesnt stay in the president ial suite there because of fear that the chinese may be bugging the place. Anbang also is close to buying the Strategic Hotels properties from blackstone. A deal just signed up in december. Now being flipped to the chinese to anbang. Somebody said you guys can do and start doing thing. A couple billion dollars in three months . Its a great return, what theyre getting in terms of over what they paid. Anbang was there to a certain extent when starwood was for sale. However, speaking of people who are involved in the process, you may recall i reported for a time that hyatt was in the lead position, only to get bumped out at the last moment by marriott. The chinese never came forward with an formal proposal. It seems the chinese like it almost better when theres something actually to shoot against and they know what the deal is you had a shareholder vote on the 28th for starwoods shareholders. It was necessary for them to act right now if they were going to have hopes of actually buying this hotel chain. They will make arguments that say, you know what . What about jobs. You worry about that . Well keep more jobs in the states than would otherwise have been the case because starwood will stay starwood as opposed to a lot of the integration that takes place and the inefficiencies through layoffs. This stock dropped to 60, 62 for a while. Traded higher than where this bid is from anbang. I got to tell you, i felt when fritz van pasten, i thought he was doing a good job and was tossed out by the board, the board sold the company out at a terrible price. The marriott deal was almost a giveaway. This deal now makes more sense for shareholders. Anbang is an inquisitive company. If this deal goes through, youre dealing with the Largest Hotel chain in the world. One of the largest, but not integrating all of their properties. The waldorf, if they do complete the acquisition, and this one, they will run them separately. Im not sure who would get to run this thing. I had i had the guys, both ceos on. They made a half a halfhearted way to explain the deal, frankly. You also got the time share. Halfhearted way in the way that i think marriott stole this company. Theres a piece in the Washington Post this morning, an interview with bill maher rr, wondering whether they should stay in maryland. Im not sure theyll be able to compete here, but thats going to be a key question, jim. If they choose not to, its incumbent upon starwood to make sure the chinese are for real. Yes yes, they are, but they have to get this thing signed up. Anbang is willing to pay the breakup free to marriott if they sign up the new deal. Thats what will go on. Marriott has to make a decision as to what level theyre willing to go to. How much cash they can add to the deal. Does it have to actually equal what anbang is offering . Perhaps not. They may be further along in some of their approvals. They expect to close as early as july, not that far away. This is a large all sdsh cash o offer fr offer. Travel seems to have declined a bit. We know the airlines have gone down. All the hotels have traded down. Just to not just make it so one way, blasting mr. Sorensen for stealing the company. The group got bad. By the way, marriott vacations, which was the analog to the timeshare business, that stock really got crushed. You put the comparison together, the group fell down. Did. But marriott did not benefit from a good deal from their perspective and one that would as a combined company be beneficial. I was shocked. This deal is giving marriott significant scale. Its interesting if theyre unable to complete the acquisition what they will choose to do. When i said halfhearted defense, i thought they came on and told a decent story about the combination and nobody cared it was almost as if, listen, we dont want either. Thats why this is so exciting. You have this new Company Coming in and reevaluates the price of hotels. Theres not been a resurgence of hotel building. Its a scarcity. Thats one reason why the sector has been able to outperform so long. They didnt overbuild like they did in chapters past. No. There wasnt enough construction lending. China cooled. Some people say you should not take away for the multiple being paid for Strategic Hotels and resorts. They have the essex house or the co coronato in san diego or the four as soon as. But these guys seem to be willing to play top dollar. W who are they . A very large insurer. They look to match their longterm liabilities with the assets. Hotels are one way they see of doing that. That waldorf deal woke us all up given what the number was. 1. 95 billion. The cap rate on that thing was incredibly low. Yeah. The chinese and not the president as a guest. Unical was the High Water Mark of china. They got shut down on sifious because that was used by chevron. Could marriott use sifious here and get the political candidates talking about it . I dont think so. I think marriott stock is going up because the arbs. Marriott is up nicely. This deal was so bad. Such a bad deal. For starwood shareholders. I know they can come on and they say, no. No one cares about together. What they said was when you look at the ownership when the deal is done, starwood people will benefit. The fact is that fritz van pashen was doing a better job. They canned the guy. He spent the month in chinese. Chinese travel did not go down. I thought fritz got a raw deal. I thought he was an extraordinary hotelier. Here today, gone tomorrow. A lot of people get fired in the country. Most tend to be fired because the stock underperforms. This man was offering special dividends, buying back. The internal activist pressure against fritz seemed wrong to me. How does it fit in with the week, we just discussed . Theres another cash bid. Since february 10th this market has been on fire. We have to talk about this tfm deal. It was trading higher, but the company had been leaderless. Apollo comes in. This group has been down. Fa fairway has been a disaster. Whole foods. The main takeaway is that theres credit. You see whos coming to the market . Brazil, turkey high yield has been back for a couple of weeks. Its not a large deal, the apollo fresh market deal. Not talking many billions of dollars. For adt, a much larger deal. Thats true. Dont you see inflows . The world trying to change . It was a faux credit crunch. Faux. Yep. Faux. Faux. It lasts a few weeks. Yeah. Yeah. I love it when you speak french. You like that . You got game. When we come back, oscar munoz at united back on the job amid numerous challenges facing the airline and now his own tenure. Well tell you what he wrote to a letter to employees. Look at the premarket. S p 500 is up 8 of 9 sessions, up four weeks, above the 200 day for the first time this year. More squawk on the street in a moment. Why pause to take a pill . Or stop to find a bathroom . Cialis for daily use is approved to treat both erectile dysfunction and the urinary symptoms of bph, like needing to go frequently, day or night. Tell your doctor about all your medical conditions and medicines, and ask if your heart is healthy enough for sex do not take cialis if you take nitrates for chest pain, or adempas for pulmonary hypertension, as it may cause an unsafe drop in blood pressure. Do not drink alcohol in excess. Side effects may include headache, upset stomach, delayed backache or muscle ache. To avoid longterm injury, get medical help right away for an erection lasting more than four hours. If you have any sudden decrease or loss in hearing or vision, or any symptoms of an allergic reaction, stop taking cialis and get medical help right away. Ask your doctor about cialis and a 200 savings card United Continental Ceo Oscar Munoz resuming his full time role after receiving a heart transplant following a heart attack. He faces numerous challengers including activists disgrantaled with the board. Munoz writes i have many priorities on my first day back, but at the top of the list is my meeting with labor leaders. I believe we can resolve our contract issues so that we can focus on the most important thing. Running the greatest airline in the world. Im focused on what happens when your ceo has an illness and the way to handle it. Whether they handled this right. We know jamie dimon, forthcoming when there was a cancer diagnosis. You know they didnt handle this right. Early on they did not handle it right. Was my point you could have said it. I was trying to be a diplomat. Why . I dont know. The wife is away. I dont know. They were forced to. Yes i didnt like the way they did it. Lloyd blankfein there immediately. These guys did not handle the disclosure right. Thats important. When something happens that is this tough or dreadful to the ceo, i think we have to come up with a code of conduct about what has to happen. I didnt think it was right. I think the disclosure was wrong here. That may or may not be one of the key reasons why they face this challenge to the board. Right. Six members being sought how should i have said it . Thats what im getting at. An altimeter which was formed by a guy who used to be at par. We have not heard from them since they came forward. Whats the plan . What is it that you want . Better governance. The governance was questionable in this. It was. The governance was questionable when it came to the health of the incoming ceo. I think weve got to know the health of the ceo immediately. The companies that withhold this, i think, the sec ought to give a call. I wish oscar the best of luck. Looking at the timeline here, i think that this is leading me to something that we must cover again. Valeant. Valea valeant. Guy, hey, hes not well. Okay. These are ceos, these are publicly traded companies. When youre a private company and a guy is not well, okay. These are publicly traded companies. This is probably the most material thing that can happen. I still dont know what happened to the valeant ceo. We know he had pneumonia and extraordinarily sick. Still not quite certain as to the level of his regained health. Were not. I know hes walking with a cane. Essentially youre saying weighing their privacy versus investors needs, youre saying no content. I like apple very much. I wasnt crazy about the way apple handled it. That was a long time ago. But i think this issue has to be front and center when a ceo is sick. There has to be a code of conduct. Jamie dimon on one hand saying this is whats happening to me. Albright or blankfein. Munoz we didnt know what happened, valeant, or steve jobs. It was all secret. Pneumonia, its terrible. Terrible to get pneumonia. But we had a ceo, then we had another ceo. The handling of valeant, if you were a shareholder of valeant, i think you certainly feel like would you please give me more information . Right. It wasnt just that. The communication around his return was suboptimal. Yes. Illadvised. I developed these terms for idiotic and stupid. I got older. I just you dont have time to beat around the bush on this stuff. Not anymore. Its time to be, as elder statesmen. Yes. Time to face thats what ive become. An elder statesman. Well talk to founder of southwest, herb keller about that and a lot more in a couple minutes. Well get the mad dash, count down to the opening bell. Well talk about what to expect from the fed on wednesday and what the primaries tomorrow could mean for the market. You cant predict. The market. But at t. Rowe price, we can help guide your investments through good times and bad. 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If theres a way to replace oxycodone, which is an addictive drug, overprescribed, this is pure cannabinoid made in europe. Theyre not allowed to make it in this country. Its a felony to make. They got incredible results on a phase three for childrens epilepsy which is just absolutely terrible. This is a way to prevent seizures. Thats a small populous. What is really going on . If you want to prescribe actual medical marijuana, a real doctor is reluctant to do it. Theres no uniform standards. All you wanted is the pure cannabinoid. There will be offlabel use of this galore. Insurance Companies Wont pay. This is a way to get rid of a terrible, terrible drug, oxycodone, and thats what its used for now . For pain. Youre saying the offlabel use is for pain. But for childhood epilepsy thats a small market. But thats what the stock is up on now . Yes. If they get this, believe me, doctors will say, listen, heres a cannabinoid prescription. In oregon, in washington, in colorado, you can go to a pot store. Theres a pot store next to my daughter. Theres a green cross next to it. I said whats the green cross . She said, dad, its a pot store. You got to be kidding me. But its not regulated in terms of whats in the dose. Doctors cant say take two no this is regulated. The only storage of pure cannabis right now is at university of mississippi. A lot of people have been waiting for an actual painkiller thats not addictive. This would replace, i believe, the terrible, terrible wave of death that oxycodone has caused. The stock had been drifting downward. Now it will have a historic day. Right here people felt phase three wasnt going to work. For childhood epilepsy, this is a huge thing. The offlabel use is driving this. And the short squeeze. All right. Ive been following this forever. You have. I know people who you think this is a stop trading stalwart. Oxycodone, i know people who have been addicted and died from it. This has got to end. Its a youth epidemic that must end. This is a hope for it. All right. Well have an opening bell ring in a few minutes. Also joining us, Southwest Airlines founder, chairman emeritus, he will ring the bell and come down and maybe talk about united when we come back. [vet] two yearly physicals down. Martha and mildred are good to go. Heres your invoice, ladies. A few stops later, and it looks like big ollie is on the mend. It might not seem that glamorous having an old pickup truck for an office. Or filling your days looking down the south end of a heifer, but. I wouldnt have it any other way. Look at that, i had my best month ever. And earned a shiny new office upgrade. I run on quickbooks. Thats how i own it. Youre watching cnbc squawk on the street, the opening bell in 90 seconds on this monday of a busy week. The primaries tomorrow. Central banks will be in focus once again. Bank of japan tomorrow night. The fed on wednesday. Jim, markets pricing in a 4 chance of a hike. 49 of one in june. I think that what if you go back to james bullard, the reasonable Federal Reserve voting member, who said, look, if oil keeps going lower, he will this will make him obviously more accommodative. Oil going back up has been something that i think will change peoples view. Theres also a tremendous commodity rally. We dont talk about the commodity rally enough. The rally in copper, aluminum, iron ore. Has china bottomed . I think the commodity rally will make it so they pull the trigger in june. Retail sales were okay. Thank you for saying that. They were okay. 10 . Industrial production was at a new sevenyear low. But if europe starts spending because of draghi, 25 of the exports go to europe. By the way, 10 million middle class. Big demographic shift. The s p 500 at the bottom of the screen and the opening bell. At big board, they welcome irish business and political leaders for the sixth annual ireland day. Well talk to herb, people throw around legend pioneer. Youre talking a guy who changed the airline. They never made money. Southwest were run like a business. Over at the nasdaq, metadata, the Young Scientist Foundation provides students opportunities in science. Goldman upping j j to neutral. Wow. That is an interesting upgrade and i completely disagree with it. Not because i think it shouldnt be upgraded. This should be a buy, but because i dont want a breakup analysis. Thats no longer necessary. The idea of spinning off the consumer brands, i think that alex gorski, he made some tough decisions about medical devices. Jamie rubin, searching for a way to be able to go bullish on a stock that frankly has been the best performing in big pharma. And you like the combination. I at one point favored the breakup. I didnt feel they would take tough action. Ive been won over. Im back. I like it. This stock has very heavy euro exposure. If you look at the euro year over year, not a big deal anymore. You wont get the currency cut. Its important to recognize that j j is the best performing, even better than bristolmyers. Wow. Interesting. Really . Goldmans premises is the consumer is undervalued. You dont need that anymore. Come on. The j j we used to love is back. By the way, ralph larsen, what a great ceo. Yeah. Last week, we tweeted about it. I know. Its important. They had incredible success under his leadership and much rockier since. He handed it off to weldon. Weldon has now handed it off to gorski. I was waiting for the tough action, job cuts, waiting for medical devices to get more in line with the group. Aaa Balance Sheet. J j is back. No need to split off the consumer. No need. Its true the consumer would be a piece we would like. But the parts of the whole, not as good as the whole. Because they have fabulous growth in the actual pharmaceutical segment. New drugs. Amazing new drugs. I like what gorski is doing. Hes back, im back. He would say hes never been away. Hotel names, doing okay. Starwood and marriott, host and wyndham trying to get in on that party as well. Wyndham is up there. Steve holmes has done a remarkable job but he wont sell the company. He built a fantastic hotellike business. One of the best performers since the bottom. Steve holmes, saluted. Not just the prospect of anbang along with its partner, chris flowers and primivera buying starwood, but also blackstone at a higher multiple that was paid back in december. That was a high price to begin with. That seems to be adding to investors confidence. Fervor. Even though it may not be that well placed. A lot of assets within that group are the highest sort of name recognition and the highend, whether its the essex house or the coronato or the loews in santa monica. Nice up with . Yeah. M a, its its m a monday. Could almost be a merger monday. It is we had the small market deal by apollo. Thats a big deal. A real deal. A real deal because i felt fresh market overexpanded. Made a lot of mistakes, but in the end there was a period where whole foods fell radically. A lot of it was because fair way came to market. Fresh market flooded the world with stores. If they pull back and get more rationale, you would wish you bought whole foods at 30, 35. We had walter robb on. Im a buyer of whole foods off this deal. How about a buyer of cmg . Will speak at the b of a conference on wednesday. Now tying part of their executive comp to stock performance. They got hit by nova virus. They said, okay, too many people sick. Shut it down. That stock is back. Loyalty is important, plus free burri burrito. Nice. Free is good. Free. Right from the man. Keen sense for the obvious right here. Stick with me. Yes. Yes. Wanted to come back to marriott and starwood. Jim pointed this out. Marriott stock is up, but in part perhaps because those setting it up on an arb play and shorting marriott are covering that. That may be helping. It does have the effect of helping the overall value of its deal, if you remember, when they announced the deal to acquire starwood, 2 a share in cash, also remember, dont forget, you will get the subsequent merger with leisure group. Back then, it was 7. 80 per share. Now down to 5. 50. That does not add up to 76 bucks. No which is conceivably what you could be getting from anbang. It does help the value of that deal. That was one complicated deal. It is largely a stock based transaction. Thats my point. If they want to try to compete, they will probably have to add more cash to the composition of the offer. How about the reevaluation of hotels. Travel down a great deal. Expedia, a stock that i love, finally gets a little love on street from deutsche bank. They bought homeaway. Look out, air b b. Homeaway with expedia is going to be the real competitor. Homeaways website was not enough air b b. Watch expedia here. That stock will be the travel stoc stock. Thats a big call. Making it right here right now. Dow is down 35 led by some oil names. Lets get to bob pisani on the floor. We would be a lot higher if it wasnt for energy stocks. Probably a similar situation over in europe. Look at europe. Weve been up, off the highs in europe. Modest gains over there. Those Regional Elections in germany which went against merkel on immigration didnt hurt germany much. Italy was positive. Now slightly negative. In the u. S. , oil is hurting us. Down about 2 . Irans comments they will only freeze output when theyre at 4 Million Barrels a day. Utilities and telecom were the early leaders. Te tech, materials are the big laggards here. Apache and other Exploration Production names. Everything down roughly 2 , 3 in the energy patch right now. A lot of chatter over the weekend about the onemonth anniversary of the big turnaround. That was february 11th. That was the date jamie dimon announced buybacks. It is good to see energy has been the leader. This is since february 11th. Notes also here telecom and utilities continue to be fairly strong. Theyre not the leaders. But theyre still up rather notably. The important point here is a lot of comments over the weekend about this. Telecom and utilities still far and away the Leadership Group for the year as we enter leave the First Quarter. You can see telecom and utilities up double digits on the year. Nothing else really comes close. Staples, utility, energy up fractionally. Thats about it for the Leadership Group. Well take any gains at all. Telecom and utilities an odd group to lead in the First Quarter overall. A lot of important points about utilities. The case for utilities made over and over the last few weeks. Less vulnerable in the economy, low commodity prices. We have nice dividend yields, and they grow. The dividends grow at a regular basis of 5 . I can see it in a lowgrowth environment. The problem i have with it is overall, when you have utilities as a Leadership Group, the overall stock market generally doesnt do well. We asked our partners at ken shaw about this. Since 1990 only five times when utilities have been the Top Performing sectors, the top two sectors in the First Quarter. In those five years, s p is positive 80 of the time. Returns for the year have been mediocre. Better than nothing. We did pass the 200day moving average for the s p for the first time this year on friday. Thats only happened on the upside since 200923 time23 time right now dow down 23 points. Straight from ringing the opening bell, the founder, chairman emeritus and ceo of Southwest Airlines, herbert kelleher. I was privileged to ring the bell. It only took about 35 minutes of i instruction to teach me how to ring the bell. I am irish. Ireland forever. Talking about the amount of business that ireland brings to the United States. That side of the street is not looked at too often. Not nearly enough. Ireland on a comeback. A lot of businesses in the United States, hires a lot of people. Its a twoway street, not just a oneway street. I was glad to be reunited with my compatriots today. Funny you mentioned united. Yeah. May i . It sure is good to be in america . No. We have to ask, given whats going on there with these activiactive i activi activists theyre not activists, large investors trying to get board seats. What do you think of that battle ahead for a ceo who is just coming back today at united . Im sorry, i missed the battle. You know, theres two large Share Holders at united who are trying to get seats on the board of directors. Yeah. I missed the reference to united. Where are they located . I think theyre in chicago. In chicago. Ill tell you, im a big admirer of the new ceo, oscar munoz. From everything that ive seen, sending out to his employees, manifests the is same human istic spirit that Southwest Airlines does. He had that heart transplant, but back in a hurry. I think the people of united are excited by him. I hate to see anything that is a drisz traction for him. Some argue theyre ontime performance, efficiency, lagging their competitors. That they brought this attention on themselves. They have. But theyre snapping back from it. Theyre not at the top of the heap yet but making Good Progress up the ladder. It is an honor to have you. Great to be with you. I had gary kelly on for my other show, mad money. He was surprised that the industry has such discipline. Southwest never lost the discipline. Its a changed industry. Are you surprised that the return on investment i know. Isnt it incredible . How did it happen . Yeah. Its a miracle. You have a lot fewer airlines today. People have a lot more confidence in their future. Were finally producing returns equivalent to the rest of american business. Long may it last. Southwest airlines was always in that situation. We never went after market share. Just profitability. Which is why weve been profitable for 46 years. Basically the whole industry now is sensitive to that issue of new leadership. Im just concerned that maybe now that the industry is doing well, we may tiptoe towards reregulation. I know gary was about to add a lot. Then the discipline came back. We added a lot. Let me tell you why we added a lot to. Because we had a bunch of unique opportunities. To open up love field. Get slots at national airport. You either do that or you lose it will you see it tapering off this year. You just said youre sniffing out a little reregulation. What are you talking about . I see proposals forwarded trying to tell airlines how to provide customer service, which the c. A. B. Did for many, many years. Which disabled most people in america from being able to fly. What they regarded as hot competition in those days, american and united were contending against one another on the chicago ohare los angeles route. You know what contention was . You know what marketing ploy was . One had a gold tea service. One had a silver tea service. We dont want to go back to those days when only 15 of American Adults have ever been able to fly on a single commercial flight. Having lobbied hard for deregulation, having benefited from it, the country has benefited it enormously. Now 85 of us have flown on a commercial flight. Maybe im paranoid a bit, but i hate to see even tiptoeing, you know, in that direction. Of course taxes and fees are incredible on the airline industry. Higher than cigarettes and whiskey, which is a triple whammy for me. I must be the highest local taxpayer are you still smoking cigarettes . You cant be. Not here. Unbelievable. Whats the secret . This is my chance to have a cigarette, isnt it . On cnbc . They wont shut you down. Theyll kick you off the floor. Do you see a return to the days when a lowcost entrant can go to the desert, get a couple cheap planes and crush fatheres . You have ultra low cost carriers. They are being successful. You have spirit, allegiant and others. Some of them are going to the desert to bring those planes back into service. Youre right. The number of planes out there in storage has shrunk. You have two currents going down that river. Bringing older ones out of the desert, lower fuel prices helps in that respect. Buying new ones to replace the older ones. One last question. The price to earnings multiple. Youre an operator. People dont believe, they southwest sells at 12 times earnings. But the others, five, six times earnings. Arent they ridiculously cheap. I think so. I agree with you. Good. I do. You know why think happened . I think problably the investing market has invested in the past and hasnt awakened to the future. I think they need to look ahead more. See the kind of results that are being produced. See the reduction in debt among the legacy carriers. Look at their lower costs and say, you know what . This is now a stable industry. Wow. Its big. Thats the way i feel about it. I totally agree with you. Herb, come back. Promise . Thank you. Its been wonderful being with you. Great to see you. Remember, ireland forever. All right. Herb kelleher. Lets get a closer look at bonds and the dollar. Rick santelli is at the big board for us this morning. Good morning, carl. Love the big apple, wish i would have left the rain back in chicago. If we look at the yield curve, 2s basically unchanged. When you look at stocks on friday. Getting close to unchanged in the u. S. Lets look at year to date of twos. Hovering in the mid 90s, but down ten basis points on the year. Sentiment at 105. Lets look at fives. Toying with 150. When you think that they settle at 176, it gives you perspective. Look at a twoday of tens. We backed off a bit. 2 is a huge psychological area. Lets not undermine the influence of the equity markets. We settle at 227 on the tenyear. Down close to 30 basis points. If you look at that on the year to date chart we can clearly see theres a lot of resistance between 195 and 205. It was like a drill, a street drill when you tried to break through it when we started to move lower in yields. Also remember we have come well off the 160, mid 160 closes that we had not that long ago. If you look at foreign exchange, look no further than the euro versus the dollar. Under 109 at the end of last year. 111, 112 handle is significant. The biggest significance is what happened after Mario Draghis conference and how were still seeing that strength in the currency. Back to you guys. Nice to have you here, rick. See you at post nine in a bit. When we come back, youtube cofounder steve chen live from south by southwest in austin, texas. Theres no one road out there. No one surface. 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So, we say thank you america for a century of trust, for the privilege of flying higher and higher, together. [alarm beeps] the intelligent, allnew audi a4 is here. Aint got time to make no apologies. Time for cramer and stop trading. One of the stocks that lagged during this whole beer consolidation is constellation brands. Thats modello and corona. Theres been so much focus on mu mullson and bud. This is the one with growth. Its also good growth in wine and in craft beer. I suggest that people buy it here. All right. Very good stock. Liked it for a while. It has double digit growth. Mexican beer is the most popular beer in the world. I know that. I cant keep them in stock. Very good. They are very good at repleni replenishing. This is one of those stories won because of the justice department. Thats right. As a result of them coming down on the Anheuser Bush modello deal. Thats why people like ge. Watch ge. I know, ge is one of the stocks stuck at 30. I like it. Whats on mad tonight. We are celebrating breakups all week. Dave kostin was here, kostin from goldman. He comes on a lot. Rr donnelly breaking into a bunch of companies. Such a buy, but misunderstood. Well clarify that this evening. Good to be back. Those weekends are such a drag. We can hang out. I do a show into the mirror by myself on saturday. Its a diynamite show. Its a great one. Mostly monologue. Well see you tonight at 6 00 p. M. When we come back, well take to you south by southwest. A live interview with atari founder nolan bushnell. The first to hire steve jobs. Dow down 44 points. The eclass has 11 intelligent driverassist systems. It recognizes pedestrians and alerts you. Warns you about incoming crosstraffic. Cameras and radar detect dangers you dont. And it can even stop by itself. So in this crash test, one things missing a crash. The 2016 eclass. Now receive up to a 3,000 spring bonus on the e350 sport sedan. Good monday morning. Welcome back to squawk on the street. Im Carl Quintanilla with simon hobbs and david faber at post nine of the new york stocks exchange. Sara eisen is off today. Markets down about 50 points on the dow. Reacting to m a, setting up for big Central Bank News later in the week along with political primaries. The question is whether the short squeeze on oil has come to an end. Down 4 . The highlights of the next 60 minutes. Big news in the hotel sector. Starwood getting an offer from a group led by chinas anbang that could threaten its existing deal with marriott. Plus the gop nominee for president could all bed abo dec tomorrow as voters head to the polls in ohio, florida and other states. Were live from south by southwest in austin with the founder of atari. Hes also the first man to ever hire steve jobs. Shares of Starwood Hotels are up sharp limit the company receiving nearly a 13 billion takeover offer from a Consortium Led by chinas anbang insurance. Starwoods board has not changed its recommendation about the planned merger with marriott. Let me tell you the difference between the two offers. The existing offer from marriott is 63. 74. A lot of that in stock. The offer from the chinese, were you able to successfully kick the tires on it, is for 76 in cash. Its 12 higher. About 20 more than marriott is offering. Marriott has now given the chinese and starwood until the end of thursday, until midnight going into friday to look at this offer. Remember, the two sets of shareholders on the existing deal were supposed to vote that through two weeks from today. This is very, very much last minute. For big shareholders, its what contingencies do the chinese have . Do they have the cash . And do you want to take the higher cash offer now or sit on marriott stock moving forward and assume that you believe in that deal and that there will be a rebound in lodging. David, youve been doing further work on this on the phone as to the implications of having a chinese buyer here. At this point, as you point o out, anbang and starwood are going to try to hammer out a definitive agreement between now and thursday. That does not limit marriotts ability to try to come back. The likelihood is starwood and its advisers will do the diligence they can and get anbang and partners, chris flowers, along with the large private equity firm that goes by the name of primavera in china to make this a reality. Theres little doubt that anbang has the money. They are a giant insurer. They closed the deal to buy the waldorf astoria for 1. 95 billion from blackstone. They are in negotiations to buy more Portfolio Properties from blackstone for over 6 billion and now engaged in this high stakes game here. The question really is will marriott try to compete by increasing the cash portion of its offer . The current officer is 2 a share. It would seem where they would have to go, where they would want to improve their offer would be to improve the cash portion. That said, there are certainly always going to be questions about chinese buyers of u. S. Assets. They would need a sifious review, this is the committee that looks at the National Security implications of various deals. China at top of that list every time a Chinese Company wants to buy something. The waldorf deal was allowed to go through. This is not an oil company or a technology company. This is a hotel company. The plan here is that they would buy starwood and allow management of starwood to continue to run that company. Though many of those managers have probably been looking for other jobs given the prospect of the marriott deal. Yes, absolutely. Its also important to understand the difference you have here in the approaches of the two sides. The chinese are structurally at a onetime opportunity to move into this country. As you have been doing work on the chinese ability to say, yes, you can go ahead and use your money to buy those strategic assets around the world. Those luxury hotels. It pushes up pri price force th sector. Bear this in mind when you hear analysis on the television today. Overlaid on this there is a huge concern that the lodging industry is essentially in its last throes of the cycle. When at the end of january you had the big industry meeting at alice in l. A. , some of those stocks were down 40 , 50 from 12 months before, or at least the spring before. When people say look at the stock of marriott. Wow, its not working. Own the deal front actually theres a Huge Industry concern thats suppressed all stock prices within that time. That also, of course, in a sense weakens marriotts hands here. Had the stock been going in the other direction they would be offering much more money. Switching to politics. The violence at trump rallies over the weekend causing more controversy. A day ahead of what could be a decisive day in the race for the nomination. Five states hold their primary elections. John harwood is in washington watching the weekend action. Was an extraordinary turn over the weekend, away from the issues in the race and towards the specter of violence at Donald Trump Campaign events including one in chicago that was canceled a couple days ago. Even though these incidence and the overhang of conflict between protesters and rally participants has only happened at trump rallies, donald trump told our colleague, chuck todd yesterday, its not my fault. I dont accept responsibspo y responsibility. I do not condone violence in any shape from what i saw, the young man stuck his finger up in the air and the other man sort of just had it. When they punch, its okay. When my people punch back because they have to out of selfdefense, everybody says isnt that terrible . Republican rivals have gone after trump hard on this issue. Marco rubio said it reminded him of third world strong men. John kasich said he was creating a toxic environment, and ted cruz said trump needs to say im going to look in the mirror. In any day in any campaign responsibility starts at the top. Its not beneficial when you have a president ial candidate like donald trump telling supporters punch that guy in the face. We have five contests tomorrow. Theres florida. He has a big league over marco rubio. Marco rubio is trying to stay alive. Doesnt look like hell be able to do it. In ohio, where john kasich is try doing the same thing, he has a lead of a half dozen points over donald trump. On the democratic side, you have Hillary Clinton with a wide lead over Bernie Sanders in the state of florida. Just like donald trump does. In the state of ohio we see her with a 20point lead in this nbc wall street journal maris poll. Last week in michigan she had large leads going into election day there and Bernie Sanders pulled off the upset. John, thank you very much. Well return to that subject during the course of the hour. As far as the stock market is concerned, down 31 on the dow. Stocks slightly lower at the open. Coming off four consecutive weeks of gains. The s p now 1 away from entirely erasing its losses from earlier this year. Crucially as companies return to buying back their own stock. Jim paulson is from Wells Capital management. Dan suzuki is with merrill lynch. Dan, you believe the s p will be at 2,000 by the end of the year. 13 points lower than it is now . Thats right. I think what were trying to say is that the risks are balanced. So thats not to say youre not going to have some rine ewinner some losers, but be mindful theres risk out there in the market. A lot of companies will do well. Some concerns, for the reasons we lowered our target, theyre still here today. In particular the credit will continue to tighten and be a headwind for the markets. Theres going to be winners and losers. Would you agree with that, jim . That seems fairly pessimistic given where we have traded over the last four weeks given those explicit recessionary fears. Yeah, i do overall. I think well end the year roughly flat, 2050. I had a range to 1800 to 22006789 we did 1800 on recession fears. Now we found out were not recessing. So we came back to unchanged. I think we may be heading higher here. Maybe breaking to new alltime highs, somewhere peaking out closer to 2200. The catalyst that brought us from 1800 to here was evidence that the u. S. Economy was not recessing. The catalyst that could take us from where we are up towards 2200 is better Economic Data coming out of the global economies. If we see better data out of the eurozone, which just reported a big pop in industrial production, and china, i think that excitement about a synchronized bounce in Global Growth could take stocks higher. The problem, as dan was suggesting, in the United States, because were at full employment, i think if we do pop higher in the economy, were going to see inflation, core inflation pick up. Force the fed to tighten faster. We might have a selloff at the end of the year based on overheat and fed hike fears that might take us back to unchanged. Jim, that sounds like a resire recipe to overweight emerging markets in europe . I would take the opportunity to position myself longer term here. That would indeed be international markets, including the meeremerging undeveloped mas overseas which dont face the up employment pressure that we face here. Also more of the industrial, capital good producer side sectors in the global economy, which i think have been laggards over the past several years and now will be leaders for a period of time and lightening up on the Consumer Sector stocks. Dan, in the meantime what about the ceos buying bear their own stock. Some sessions have been light volume, and we moved higher on them. I saw a figure today that in contrast to that, in this quarter alone that ceos will spend 165 billion buying back their own stock. Others are exiting mutual funds or etfs, thats still an awful lot of buying. Could that not in itself, if its repeated in other quarters, push us substantially higher . I think those numbers sound roughly about right in terms of the magnitude. The buyback. I think the buyback story gets overdone in terms of the impact on the markets. We estimated thats added 1 , 1. 5 performance to the s p overall, which matters a lot when the markets are weak. Overall its not a big contributor to performance. If you look at the last couple years, those stocks doing the biggest buybacks have been underperforming the market. Thats the other component that the market needs to realize. If you buy stocks at a high price, you are making the market even more expensive and vice versa. So were looking for stocks that have the ability do buybacks, but that are also buying them at cheap valuations. Those stocks can continue to do well. For the market overall, we dont think its a huge swing factor. I think the best thing that investors can do now for the portfolios is to take advantage of this low risk rally that we had over the last month and sell those stocks and move up the spectrum, move up the quality spectrum and have a particular focus on companies that have sustainability levels of leverage here. Good to see you both. D when we come back, as oil prices fall, some Energy Companies slash dividends. Could those cuts be a good thing for investors . Well talk about crude which is down more than 4 at the moment. Youre an at t Small Business expert . Sure am. My staff could use your help staying in touch with customers. At t can help you stay connected. Am i seeing double . No maam. Our at t buy one get one free makes it easier for your staff to send appointment reminders to your customers. And share promotions on social media . You know it now im seeing dollar signs. You should probably get your eyes checked. Good one babe. Optometry humor. Right now get up to 650 in credits to help you switch to at t. Woman man yes. A newspaper . Woman its quaint. Man did you read about this latest cyber attack . Woman yeah, i read it on my watch. Man funny. Woman they took out the whole network. Man they had to hand out pens and paper. Woman yeah. Man could it happen to us . Woman no. Were okay. Man we are . Woman yeah, we brought in some new guys. Man what do they know that we dont . Woman that you cant run a country with pens and paper. Its not just security. Its defense. Bae systems. A lot of energy names have slas slashed dividends in recent months, a move that is often seen as negative. But that story could be changing. Dividend cuts have been picking up. 19 companies have reduced or in some cases completely suspended dividends. While investors have regarded these cuts as a negative, look at what happened since january 20th. That is since crude rallied so has the energy sector. Which has actually doubled the broader s ps gains. Gains led higher by some of these dividend decreasers. Take anadarko petroleum, it slashed its payout by 80 in february, shares popped nearly 50 since the energy rally began. Noble energy cut its quarterly payout by 44 in january. That stock jumped about 28 since the end of january. Diamond offshore drilling saw its stock soar 38 . These moves are correlated to crude. Analysts say as oil prices rise, companies can make money or not loses s as much. This is playing out with companies that have been hit the hardest and been forced to reduce payouts. This is all going to come down to crude. Thats lower again today. Whether that can overall continue to climb and of course sustain it. Carl . Morgan, thank you very much. Morgan brennan back at hq. As we continue to look at energy, we are joined by the ceo of merck partners and former ceo of gulf oil. Good to see you again. Thank you. I want to get your temperature on production. We finally get rig count starting to move and the iranians saying we want our piece of the pie before we Start Talking freeze. Is this move off of the february low, is this the end of it . Well, i think weve seen the bottom for sure in crude. And i think a lot of the Oil Companies realize that crude was better on the Balance Sheet and in the cheaper storage, which is the grown, rather than pull it out and sell it. So, we have seen the bottom of crude and other good signs, a pick up in driving by the consumer. Trend away from the smaller cars. A lot more economic activity. The big story is natural gas that remains from an investor standpoint, the place you ought to be. Natural gas is harder to shut off because basically natural gas, just the geology of production means its harder to just shut in. We have tons of natural gas. And that is a Growth Business as well as well as crude is not a Growth Business. You are on the board of some Companies Leveraging that. Any fears that nat gas will be free in a few years . You dont believe it . Not at all. Were developing new markets. Transportation fuels, were showing switches in trucks, fleets, small cars manufactured by detroit that will burn natural gas. Well export it. The whole home distributive generation. Plus we need at least 25 new natural gas power plants in the United States if we want to avert an electricity disaster. Unlike oil, natural gas is developing new markets in transport, export and home power production. I paid 1. 61 over the weekend, joe in new jersey. Is it going to get better than that for the consumer . I think so. Im working now with a company that will put out a way for people internet pricing that you can lock in the price of gasoline for 90 days to three years. When you show up at the pump, you will get the lower of the price you locked in or the price at the pump, which is just a great deal for the consumer. Wait. Youre saying the consumer will be able to hedge on the retail front on a 90day time frame . 90 to two years is the product. The company im working with, im an adviser in full disclosure to the company, fuel bank out of florida here. Yes. Theyll it will be internet pricing for gasoline. Im trying to imagine the regulatory loopholes youll have to jump through to get that approved nationwide. Theres really not that much. As long as you allow the consumer to if they dont pull it within 90 days to give them the opportunity to roll it over forward. There are not many regulatory. There are some laws in each state we will follow. That would change the way people buy gasoline. No doubt about it. Would be a game changer. Well talk gasoline next time some more. Ahead on the program, Starwood Hotels getting an unsolicited lastminute takeover bid by chinas anbang insurance. Coming up, a look at anbang. Who are they . What do they do . Were back after this quick break. Shares of go go jumping after they signed a deal to supply connectivity to several chinese airlines. This will see gogo technology installed in about 50 planes. Shares of gogo off session highs, but still up by about 2 , carl. Thank you very much. When we come back after a weekend of rally violence, were awaiting Donald Trumps First Campaign event ahead of tomorrows crucial primaries in ohio and florida. Seemingly all that stands between trump and the nomination. More on that with the dow down 26. Sales event is on. With extraordinary offers on the visionary ls, the generously appointed es and the new, eightpassenger lx. This is the pursuit of perfection. They may want the latest products and services, but they demand the best shopping experiences. Theyre your customers, and as you strive to meet their digital expectations, theyre enjoying more choice and greater power than ever before. At cognizant, were helping the worlds top Global Retail Companies Face the demands of todays Digital Economy by blending physical with digital to create more responsive, more rewarding retail models. Ones that transcend channels and locations, anticipate expectations, and create new ways to engage consumers at every imaginable touchpoint. Its a new day in retail, where a companys ability to influence a Purchase Decision is only as good as its digital model. Together, were reimagining the store of the future, and Building Customer loyalty. Digital works for retail. Lets talk about how digital works for your business. Good morning, im sue herera. Ntsb investigators are on their way to an overnight Train Derailment in kansas which injured 26 people. The train was on its way from los angeles to chicago when it went off the track. Still no word on the cause. Flood warnings in effect for nine Southern States ranging from kentucky to texas following severe weekend stores. Parts of the mississippi are among the hardest hit where floodwaters washed away parts of highway 589. Southern California Police were forced to chase one of their own cop cruisers after it was stolen last night. The driver led cops on an hourlong highspeed chase before being cornered in an ally. The driver was fatally shot by police. And the drama that usually comes with selection sunday for the mens ncaa basketball tournament was spoiled. A leaked bracket appeared on social media before the rankings were made public. The ncaa says it is investigating that leak. Let the madness begin. Simon, down to you. Speaking of which, thank you, sue. Last day of campaigning before tomorrows crucial round of nominating contests. For the gop, nearly 400 dell gr delegates at stake. Donald trump expected to have a big day. Polling has him ahead in most states, but locked in a close race with for ohio and with the governor there, john kasich. All four candidates barnstorming for votes today. After a weekend of rally violence, were awaiting Donald Trumps First Campaign event, as you can see there, in north carolina. Joining us for analysis, the former white house political director and cnbc contributor, sarah fagan. And seventh capital managing principal monica metta. I understand that you are a sympathizer in some sense for the trump campaign. What would like to hear him say now at this event. Lets just clarify that saying im a sympathizer for antiestabli antiestablishment. I think theres a lot of waste in politics, in that way im encouraged by people like trump. Im encouraged by people like Bernie Sanders. I would like him to say more of the same, which is basically this devotion to being frank and candid and staying out of the pockets of special interests. Thats what america needs. Monica what did you theres a huge amount of comment as to what happened on friday night with the canceled event in chicago, then other rumblings through the weekend. How do you feel about those events . Some people would say they are a game changer. I dont think theyre a game changer. The people supporting trump will continue to support trump. They are hearing their voice trying to be squashed. If anything this will affirm their position. For others, you know, its people have to make up their mind what matters to them. Clearly theres so much anger in the country. Thats what i think youre seeing coming out in all of these events. Monica is right. There is a lot of anger in the country. Donald trump is promoting a lot of this violence. He stands up at a podium saying knock the hell out of him, beat him down, kick him out. Thats unbecoming of someone who wants to seek the highest office in the land. I think youre seeing the culmination of a lot of bad trump comments, inappropriate trump comments. Hes going to have not as good of a night tuesday as i think many people think he will. He will win some states, but hes probably going to not be in a situation where he has enough delegates to actually secure the republican nomination. I dont think as i understand from our own correspondents, thats mathematically possible by tomorrow night. You are suggesting that what happened over the weekend will weaken him tomorrow . Is there a direct correlation for you . I do think theres a direct correlation. I think one of many things. He has very disparaging comments on women. He has been pro liberal on many of these policies from taxes to healthcare. Its not a conservative. He is a almost a cartoon type character in this president ial race often. And hes going to have to pivot quickly and become much more president ial if he has any hope of actually winning the general election if he becomes the republican nominee. As it relates to tuesday night, he does appear to win florida. He appears to be far ahead in florida john kasich, i believe, is ahead in ohio. If donald trump does not win both ohio and florida and a majority of delegates in the other states, it doesnt appear mathematically possible that he can walk into a Republican Convention with the required number of delegates to be the nominee. Then were in a situation where republicans are in an open conventio convention. Sara, on the democratic side, does sanders take ohio . I think thats a good question. You know, its hard for me to imagine Hillary Clinton losing ohio, a state so critically important, both for the primary and more important for the general. I think her folks have put a ton of resources in it. If bernie were to win, though, you know, again, i think it prolongs the democratic race. Puts himself in a stronger position and drives her to the left and then puts the republicans in a chance of actually beating her. Monica, you started off by saying that you were antiestablishment in your sympathies. Do you sympathize with sanders . Do i you can repeat the question . Do you sympathize with Bernie Sanders as well to an extent in some of the policies hes pushing forward . I absolutely do. I wanted to respond to some of the comments previously made. What i find to be exceptionally unpresident ial when 8 million is missing from the department of defense. The state department, theres allegations that the state department sold over 165 billion of arms and defense equipment to saudi arabia, you could wait, qatar, and all these countries are listed as uncooperative in terrorism investigations so were basically selling arms to enemies, and undercutting the american people. Monica, we dont disagree about that. We dont disagree about that. Thats unpresident ial and unbecoming of the United States. But the question is who is the best person to lead america and to clean up some of the challenges that this government faces. I believe donald trump will take us further backward. We need somebody president ial, experienced and will put forward at kind of reforms necessary to move the country forward. Hes not demonstrated an ability to bring people together. In fact, hes doing the opposite right now. Well, i think hes demonstrated that hes not as corrupt as a lot of these other people you see and taking a playbook out of Howard Sterns method of getting attention. Hes saying anything and everything to get his attention. Lets talk about howard stern for a moment. Thats what sells them into the pockets of special interests. Lets talk about howard stern and the comments donald trump has made on the stern show. Like, for example, a woman cannot be a 10 if shes flat chested. Is that becoming of a president ial candidate in the United States of america . Is that somebody we want sitting in the oval office . Are you comfortable with that, monica . Is being politically incorrect the worst thing you can be . How about stealing . How about murdering someone. Theres a lot worse things. Great. Okay. By that standard, youre right. Okay. Its an emotive situation. Thank you for your analysis. Well see what happens tomorrow. Hopefully see you again, both, on the television. 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Back in 2004, it was hard to get insurance licenses which is a sector heavily dominated by stateowned giants, but anbangs chairman, wu, is marry ed ied t the granddaughter. They have been acquiring massive stakes. In the largest banks, like ibc, six insurers, two asset managers, asset properties. But the thing that put them on the map is the 1. 9 billion they paid up to purchase the waldorf a astoria. They have been going after insurers like strategic and fidelity guaranty life. They have also bought up buildings in canada as well because of the cheap canadian dollar. Theyre looking at hotel groups, 6. 5 billion for strategic groups and hotels. This is strategic for a lot of Insurance Companies and Chinese Companies looking to go outside of china. Because they are expecting some slowdowns to take place in china and also u. S. Assets are look cheap in comparison to them. What about the play on chinese tourism . At apec last year they said they expect 500 million outbound tourists over the next ten years. I guess you could ask the question what do they want . Do they want steady trophy assets, the ownership of hotels, solid bricks and mortar or more about trying to brand something vertically for the chinese outbound travelers . If you look at the projections of how that could swell over the next 5, 10 years, theres one Growth Market beyond all others, its the chinese wanting to travel abroad. Of the two, which are they more focused on . I think its a bit of both. Thats what it looks like. You might as well get hard as sets outside of china where you have some uncertainty over the state of the economy and where the renminbi is going to go. And Brand Recognition to the chinese traveler. They bring a lot of dollars to europe and the u. S. Thank you, susan li. Rick santelli is on the floor of the nyse today. Hi, rick. I would like to welcome my guest in person, andy brenner. Its a pleasure. Everybody is saying that the vote that occurred over the weekend in germany is all about migration. Okay . All about refugees. Im sure part of it is. When i talk to people, my sources say dont dismiss the 20 , 25 voting on the final repression issue. Whats the translation . They dont like the central banking activity what about the ecb and credit . You have thoughts. No question about it. The europeans have been in financial repression for the last three, four years. Doesnt seem to be getting better. What ecb did last thursday is more creative. The negative rates we both know dont work. Going further in that direction. Just a waste of time. By buying corporates, they have contracted the already contracted, even though they wont start buying until the end of june or july, they contracted spreads in europe by 27 . Thats going to affect corporate spreads throughout the world. It will affect it for u. S. Companies and u. S. Companies here in the u. S. They think like our fed thought that all this money would go on the banks Balance Sheet, help them make money and go into lending. Didnt turn out that way in the u. S. Do you think it will turn out that way in the ecb . I do. In the new tlrto, they actually make it so bank also now be able to borrow money from the ecb to lend to consumers and to corporations. And if they lend to consumers and corporation, theyll be able to borrow money from the ecb at negative 0. 4. One thing hurting europe the last year as we have gone into negative rates is the banks cant make money. Hold on. Since we live in a political time now, im sure theres Bernie Sanders supporters out there hey, God Bless America they would say who wants to help the banks . Who wants to help wall street . I think everybody who is on an iphone and watches netflix theres a trail of money to a financial institution. No question about it. Banks have to make money. They lend. If they lend positively its good for the economy. You see growth in everything else. We were talking off camera, Silicon Valley may be the new place, everybody will love them better, same activity, same markups. Speak to that. Weve been seeing banks being much more interested in Silicon Valley and Silicon Valley acting more like banks every day. Theres nothing more obvious than what happened at bridgewater just the other day, where all of a sudden the number two guy at bridgewater will be an exapple guy as opposed to a banking guy or trader or whatever. So i think youll see a lot of interaction between banks in Silicon Valley. Silicon valley could be the new financiers. I think theyll be more well received especially by the less conservative crowd. But in the end, the reason we want banks to make money is because we like do things like turn on the lights, watch tv and use our iphones. Andy, its been a pleasure. David, carl, simon, back to you. Its nice to have you at the new york stock exchange, rick santelli. Thank you. Up next, we are live from south by southwest in us aen with the founder of atari, and the first man ever to hire steve jobs. Squawk on the street will be right back. An hour and 20 minutes into trade, of course, coming off a reasonably good base. Four consecutive weeks of gains for the market. Question, where do we go from here . Dominic chu is back at hq. Were watching shares, 3d systems surging this morning, up by 25 . Billion and a half marking cap company, Fourth Quarter sales fell by less than what was expected, three ceos saying Quarterly Sales were helped along by health care, and industrial customers. Again, the best performing stock in the large cap, 1,000 index today, simon, 3d systems something to watch. Thank you,dom. Our next guest put games like Space Invaders and pong remember pong . On the map. He was also the first person to hire apple co founder, steve jobs. Lets cross to Kayla Tausche in austin for the south by southwest conference, and a very special guest. Kayla, take it away. Thank you, simon. Nolan is largely called the godfather of gaming, because in addition to those games you just mentioned, he founded atari. But also chuck e. Cheese. And he was, in fact, the first person ever to hire steve jobs and nolan is with us here from south by southwest. Thank you. Its good fun to be here. So we have to ask you, out of curiosity. Steve jobs legacy and his impression on a company that now looms so large over our economy. What do you think . Yes. I mean, steve was so passionate about everything he did, that he left his mark indelibly on the world. Reporter what about this debate right now where apple has become the poster child for encryption and privacy against the government that is arguing for National Security . Would jobs have handled that approach differently . Oh, i dont think so. I think that the technology is such that if there is a back door, if the government can keep it private, thats one thing. But i dont want every hacker and Identity Theft in the world to have access to that back door. And the government is not going to be able to stop that. If the door exists, theyll find it. Reporter the president , in his keynote on friday, said he worries about the direction that encryption is going. That if it goes too far, it will limit the governments ability to access certain information, child pornography, for instance, where the government really needs to get it. What would you say to that . I think that hes being incorrect in his assessment of the real risk. And that, you know, the government needs to know that, but it cant do it by allowing everybody to hack your iphone. Reporter you were on a panel here yesterday with your sons about the future of gaming, and one of the words that was in the Panel Description was smarter containment. What is that, and what is the future of gaming . We believe that entertainment needs to be inclusive and e ive like the ultimate Virtual Reality is reality, you know, where you actually go into an environment that is alive and you solve problems. And you put in context the things that youre learning. And that becomes real and fun. And i just think that the whole area of entertainment and learning and experiences are powerf powerful. Its also very good for your brain. We can absolutely stop dementia by proper game play by older people. Reporter so what is that new reality . Is it sitting with a largely antisocial device on your face, the way Virtual Reality is going, or is it going to a place like chuck e. Cheese and having an experience in person . Think chuck e. Cheese for adult on steroids. Thats what we really want to do. Reporter that sounds scary. Oh, no, no. No, it will be so much fun, because youll be able to shop for your entertainment the way you shop for a new pair of jeans. And entertainment today, theres so many tools that are just powerful. And cheap. That these you know, youll be able to go to a location and have this we have experience for just a few bucks. Reporter you have insight into so many lines of the entertainment industry. Not only from your prior background, but now you are running a new startup three years in, it focuses in education. One of your sons is in the arcade business, the other in Virtual Reality. Which is the most successful right now . I think that entertainment is always a frothy place of innovation and fun. Education is harder, because it it has a whole bunch of gate keepers. And though i feel very passionate about the education space, i really feel like there needs to be a blend. And just like in life. You cant have all your time having fun. Youve got to have some time where youre, you know, learning new things, and but learning new things is fun too. Reporter what is the end game . Do you hope to take a Company Public . Do you hope to sell to a larger Gaming Company . Do you hope to just stay the course . Because you did sell atari for what at the time was thought to be a relatively low number. And in hindsight, was a relatively low sum. How are you looking at where the money is right now for you . Well, for me, im more interested in the challenge. And i have fiveyear a. D. D. So i always have a new project about every five years. And theres always somebody that wants to buy what i am bored with. Reporter thats a nice position to be in. Well, it is. And, you know, ive been doing this a long time. And i cant determine the difference between my work and my play, which is the real benefit. Reporter word on the street a few years ago is that Leonardo Dicaprio is going to play you in a biopic. Thats not a bad casting decision. Whats the latest on that project, before we go . He reupped the option, and so its still in the works. Hollywood grinds slower than i ever thought it would. Reporter interesting. Well, well stay tuned for that. And we appreciate you are joining us. Nolan bushnell, now the ceo of brain rush. Coming up on squawk alley in the next hour, guys, we have quite a lineup for you. Were going to be talking to the founder of youtube that stars of the usa show, mr. Robot and Business Manager for none other than lebron james. Stick around and well see you up next for squawk alley. For now, back to the post at the nyse. Thank you very much. That is it. Squawk alley live from south by southwest. Straight after this break. Stay with us on cnbc. Here . Im val, the orange money retirement squirrel from voya. Were putting away acorns. You know, to show the importance of saving for the future. So youre sort of like a Spokes Person . More of a spokes metaphor. Get organized at voya. Com. Sometimes they just drop in. Always obvious. Cme group can help you navigate risks and capture opportunities. We enable you to reach Global Markets and drive forward with broader possibilities. 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In less than a century, boeing took the world from seaplanes to space planes, across the universe and beyond. And if you thought that was amazing, you just wait. Good morning. It is 10 00 a. M. In south by southwest in austin, texas. 11 00 a. M. On wall street, and squawk alley is live. 25 lighters on my dresser yes, sir you know ive got to get paid good monday morning, welcome to squawk alley. Jon fortt and myself. Kayla tausche in austin at the annual south by southwest festival where the president waded into the fight between apple and the fbi over the weekend, made some big headlines. Morning, kayla. Reporter good morning, carl. It was quite a keynote to