Transcripts For KQEH Nightly Business Report 20140423

Largest restaurant chain and what is being done to turn things around. Tonight, on nightly Business Report tuesday april 22. Good evening, everyone, some are calling it a merger boom. Others say it is a tsunami. There has been a frenzy of mergers, acquisitions, and deals in the pharmaceutical industry just in the past 24 hours. The big one today . Novartis, the swiss drug maker announced a series of transactions valued at more than 20 billion that will retool its pipeline. The news comes a day after valiant teamed up with bill ackman to buy for 50 billion. There were hopes there could be a lot more deals to come as some of the biggest names in the industry looked to get out of noncore businesses and focus necessary on promising drugs that could be financial bonanzas for years to come. It started with rumors, a possible astrazeneca. Novartis announced deals with glaxosmithkline and eli lily. It could be a big bid in the 20th century. The deal to buy allergan and the attempting targets like bausch and lomb, and botox that accounted for half of Company Sales last year. The big valiant shareholder hopes the country will rank number one in skin care and number two in eye health. Being number one or two in the drug segment is another motivation behind the mega deals. I believe what youre seeing is Companies Moving towards what they do well in those respective areas. That is what is going on in novartis threeway deal today. The swap got out of vaccines and Animal Health and more focus on cancer drugs. That grows to be the number two player in terms of global revenues. More of these types of deals could be coming. Merck is in talks to sell their Consumer Health products. Then there is the talk about pzizer and as astrazeneca. Were seeing a narrowing and a focusing of businesses along strategic lines. And so far this year the number of pharma and health care deals is just about the same as it was a year ago. But according to s p, the value of those deals had nearly doubled. And joining us now to talk about the deal and activities is damion conover, good to have you with us, are you expecting a big blockbuster deal . And if so what might it be . Yes, the deal well see, well continue to see i believe not at the pace of the last quarter but i believe companies will look at investments that they have not focused on, Animal Health, Consumer Health, the Companies Like merck will do it in the latter part of this year. What is changed . Why are they doing this, damion . I think there are two things, the innovation has slowed at big pharmaceutical firms. So theyre not really bringing big products to drive the underlying growth of the rate. So theyre looking at companies where they can create values, number one, number two there has been a lot of success from other firms, most notably pfizer, and the sale of the nutritional business both of which got strong valuations and probably opened the door for other pharmaceutical firms to follow in the footprints of pfizer. So if i read between the lines, you think most of the acquisitions will be shaping and pruning rather than the mega deal if pfizer merges with company, you name it. Yes, i think that is more what well see happening over the remainder part of this year. Valuations in the pharmaceutical groups increased, an average pe of 17, that is up from 14, the last time we saw a major round of consolidation of sharing plow. It is harder to create things when things are a little more expensive. However, the costcutting could be something that pfizer deploys with the astrazeneca deal. And it seems like these deals are not just happening within the u. S. But with International Players as well. So we want to know if you see that trend continuing, and also how can investors take advantage of all of this buying and merging. Yeah, i think there are reasons why a lot of firms are interested in international firms, the tax rate causes a lot of firms to keep cash offshore. They will usually use the cash to make some acquisitions overseas. Secondly, there have been a lot of Tax Strategies where if you make acquisitions overseas you can shift some of your ip around and bring down your overall tax rate. Do talking about that socalled tax inversion, do you think that we need to refashion the tax code so that tax gaming the tax system is not driving Business Decisions . I think we definitely need to. You know, and it is going to be a hard uphill battle because you have to get a lot of the nations to agree on this. What we see here is a lot of Strategic Decisions being done just because of taxes. And that is really at some point going to be out of line at pharmaceutical decisionmaking and cause big problems, so i think taxing is needed. All right, damion, thank you so much. Damion conover at morningstar. And chairman of the global and Merger Acquisition unit of the law firm jones day. Good to have you with us, what are the conversations going on inside the Corporate Board rooms these days . Just a year ago, the ceos were sitting on a pile of cash. They were sitting on their hands and had no plans of buying any companies no matter how much the price. How has the conversation changed. Well, i think weve finally gotten rid of the fear that was in executive suites and the board rooms and investment committees and major private equity firms. The financial crisis, it seems like it was forever ago. It really was not. And we had for the longest time all the aftershocks. It disrupted everything and made major commitments hard to come to term with, because of uncertainty. Are we entering the animal instincts . Sure, there is the possibility of Interest Rates going up but companies havent had much to do with their money except buy back their stock. There have been a lot of deals, many of them in the pharmaceutical business, also the big cable business. As you look forward to the rest of this year where might you expect to see more deals . Well, i think well see a lot more deals in commodities in general, there was a giant cement deal announced two weeks ago, 50 billion, where by anybodys standard is a big deal. Well see a lot in the space energy. Tech is harder, there health care has just got to get more efficient. Well, how do you do that . In addition to worrying about your pipeline you have to worry about your cost structure. And synergies are a huge part of the equation. And these are really bold deals with big price tags. Do you think there are going to be any price tags with washington regulators in improving these deals . Well, they got a little bit tougher. Frankly i think the regulators took their foot off the brakes a little bit in the immediate aftermath of the financial crisis, in part to keep business going. We saw some indications that maybe things would be looked at more carefully. But you know, big deals are very selfselecting. You dont seen one up if you think there is a significant likelihood it is not going to happen. Yeah, there are surprises, at t mobile, was that 18 months ago or so and the American Airlines u. S. Air deal . But deals tend the get done, because among other things theyre rarely blocked. They usually can be fixed. And any adjust issues accommodated. All right, thank you so much. All that merger and acquisition activity along with another round of strong corporate earnings out before the bell lifted the major averages to a sixth straight day of gains, the longest winning street since back in september. The dow was on an alltime high watch before it lost steam in the closing, dow ended 65 points higher, and is now just 62 points shy of a fresh record close. Nasdaq was up 40 today. And the s p higher by seven. Well, Solid Earnings from two big name components gave a list of stocks when the markets opened this morning. Travellers posted earnings 79 cents a share higher than analysts estimates, higher premiums, revenues were higher than expected and they raised their dividends, united wall streets sales rose and the Company Raised its full year outcome. Shares of both companies rose today. And dow reporting at t earning, profits beat by a penny while revenues came in at just what was expected. And another story, along with march sales figures, they did it before the bell. Both of the numbers disappointed investors, shares of mcdonalds among the biggest decliners of the blue chips, down about a third of a percent. Courtney reagan takes a look at what is behind the sagging sales at the burger giant and what mcdonalds is trying to do about it. Reporter diners are not likely loving it. It was a mcmiss, with profits falling from the worlds highest restaurant chain, thanks to higher beef costs and slower traffic. The sales grew by half a percent with Even Stronger performance in europe. But in the key u. S. Market sales fell for the fifth straight month. While the fast food chain is selling burgers in an increasing Competitive Industry facing rising costs and labor costs, the ceo admits mcdonalds needs to strengthen its menu and work on the relevance with consumers. Diners are confused, mcdonalds said, and slowed down service. The leadership position is shrinking as competitors like taco bell and Dunkin Donuts are introducing new Breakfast Menu items. But the sources say they dont think that mcdonalds is in danger of losing their morning dominant position. Mcdonalds does say april global comparative sales are expected to be modestly positive. Although the analyst david palmer doesnt see a lot of upside for the fast food chain in the near term. Right now were waiting to see what they will do to make ultimately their sales and earnings go up. Because this is really an earnings revision story when it comes right down to it. Many on wall street need signs of the sales turn around before buying into the happy meals. Im Courtney Reagan for nightly Business Report. And the Supreme Court decision that could change how you watch television, and pitting the countrys biggest broadcasters against a startup. That story next. David versus goliath case at the highest court of the land, the court heard a case on the broadcast tv giants who are looking to stamp out a tiny Video Service called aereo, that they say will threaten their very existence. Reporter right now, watching Network Television involves seeing Live Programming or recording it on a dvr, often rented from a cable or satellite provider. However, online video startup aereo bills itself as an internet alternative to cable television. A new platform for bringing live broadcast tv to the internet wherever and whenever we want it. Reporter currently available in 11 cities it relies on dimesize antennas assigned to monthly subscribers who pay a monthly stream to see an array of devices, to record shows and see them later. At the Supreme Court, Lawmakers Said that the aereo service violates the copyright protections by making available programming without paying for it. A service cannot provide live tv over the internet to thousands of paying strangers without engaging in a Public Performance. It really is as simple as that. Reporter during oral arguments chief Justice John Roberts was skeptical, saying they were designed to get around the copyright laws. But he and other justices faced concern about ruling in favor of the broadcasters. It may have been aereos strongest argument. Were cautiously argument based on what we heard today that the court understood that a person watching over a broadcast television in his or her home is engaging in a private performance and not a Public Performance that would implicate the copyright act. When we hear from the justices most likely in june it will be interesting to see whether or not their ruling is specifically crafted to whether or not the technology of aereo violates copyrighting law or do they deal with the larger question of what impact their decision could have on the future of Cloud Computing technology. For nightly Business Report, im Hampton Pearson at the Supreme Court. Comcast, one of the broadcasters involved in the Supreme Court case is the Parent Company of the nbc network and of cnbc, which produces this program. Separately comcast reported earnings and revenue today that beat consensus estimates, helped by the rise in revenue and the winter olympics. The Companies Added 24,000 video subscribers, shares of comcast up almost 2 on the session. And gilead signs say they post out blowings. Revenue came out over a billion below estimates, results boosted over the companys new treatment for hepatitis c. Shares were halted after the announcement but when the stocks reopened shares initially were up after hours, the shares were up, closing at 72. 86. Also, after the close, another company out with different results, amgen was hurt with costs and profits and the earnings fell short of expectations. The company reiterated the forecast earnings, shares fell after hours, the stocks closed 2 to 119 and change. Harley davidsons earnings topped estimates. The market said that the First Quarter was jumped by 20 helped by strong overseas sales, also sales here in the u. S. Were up despite the winter which kept people away from the dealership. Shares were up to 71. 87. And jetblue voting to join the union, about 70 of the companys pilots were in favor of the move. Shares fell almost 2 , 8 dollars, 59, and the fda cleared the davinci medical system. The surgical procedure will be used with intuitive robotic machines, the stock went to 422. 33. General motors is looking for even more protections against potential lawsuits over faulty ignition switches in its cars. The automaker filed a lawsuit in the federal bankruptcy court, asking to be shielded from a potential avalanche of claims related to crashes and fatalities that took place before gm came out of bankruptcy in 2009. Another big car maker taking a big step today, tesla selling luxury cars in china, eight of them in all, throwing in the converter. The ceo was on hand in beijing to announce plans to build a nationwide network of charging stations and Service Centers as quickly as possible in china. He hopes to sell as many as 5,000 vehicles there a year. As far as our sales in china, it is difficult to make precise predictions. What we see right now is pretty strong demand. I think probably more demand than we can fulfill this year. Now, musk also said that tesla plans to start to build cars in china within the next three to four years. And citigroup executives were expected to come under intense scrutiny from shareholders today who wanted to hear more about the companys recent stumbles including the failed stress test and allegations of fraud in the banking unit. From st. Louis, the meeting turned out better than expected. Reporter citigroups investors are clustered in the northeast. But this year the bank said meet us in st. Louis. The meeting, a thousand miles away from wall street and not telecast for a wider audience was criticized as avoiding questions about the recent turmoil at the giant global bank. Like the two instances of fraud in mexico that cost the company upwards of 4 million, or the question on buying back 6. 4 billion in stock and raise the dividends for the first time postcrisis. Despite the hits to the reputation, the people attending in the showme state showed support. The investors reelected the entire board, approved the auditor even as the fed found problems in the auditing process, and approved the pay. Something that the shareholders rejected two years ago when the ceo failed the stress test. For corb oett, he said rome was not built in a day. I think over three or four years, the stock in the company will improve. Patience is a virtual that most shareholders in st. Louis seem to have, even in the middle of disappointments. Just ask the former ceo john gallo. The Current Administration seems to be a solid team. But it has not manifested itself in the stock price. Gallo is among the group of investors with citigroup in his or her portfolio. It is one of the most widely held stocks in american mutual funds and 401 k . Even the reverend Jesse Jackson owns shares, the rainbow coalition, he says that citys restructuring, while good for the bottom line, comes in the middle of jobs and main street. It is profitable to invest in the communities, whether theyre rural or urban, then to leave them lying shallow. As long as the bank can keep posting profits like those that they saw in the First Quarter, management will keep getting a vote of confidence. Coming up, the threat of an el nino weather event, and it could impact copper and corn and more. A warning from the government to people with Student Loans. Listen up to this. The Consumer Financial Protection Bureau released a report warning them of automatic defaults triggered for private Student Loans when a cosigner days or falls into bankruptcy. The agency says that many buyers say theyre unaware of the clauses in the contract, demanding that the loans be repaid in full immediately after a cosigning relative dies or defaults on payment in full. And it is back, im talking about el nino, and weather Officials Say the Global Systems warm Ocean Temperatures and the devastating rains that follow may be headed to california. But that could be welcome news especially for some commodities that are hard hit by drought. Jane wells has our story. Reporter it is so dry in california, the usda says that 94 of the states farm economy is experiencing severe to exceptional drought. That could all change. This was 1982, when storms hit the west coast in a weather pattern called el nino. When warming water in the South Pacific travels north and leads to wetter, cooler temperatures in the u. S. Drought in australia and asia. It could help to alleviate californias threeyear drought, and in places like texas and oklahoma and places like colorado and southwestern kansas. It is a little early for california to start to dust off their umbrellas, but the el nino chance could be perhaps as high as almost 70 this year. If it happens it could affect everything from copper to corn. El nino usually means good rains for americas farms, driving down corn and soy prices and could eventually bring down the cost of meat as feeding livestock becomes less expensive. But as part of the drought, less wheat could mean less hunger and already cocoa prices could go higher. El nino could affect the price of metal. Famously, i believe it was that peru and ecuador had several years of rainfall confined to a fourmonth period, so the mines were flooded and hence production was halted. If there is an el nino, how big will it be . Years ago it hit california hard. And many tried to make light of it. You know, i was going to bring the boat down here and leave it at your place. For those who dont like the weather just wait a few months it could change, and be careful what you wish for. And were worried about a really hot summer. Hey, i would love it to get hot. Go ahead. A lot of extremes going on coast to coast, that is nightly Business Report, im susie gharib. And im tyler mathisen, for nightly Business Report, hope to see you tomorrow. Cialg tonight on the Computer History Museum presents revolutionaries. The lab employs 15,000 people including some 1500phds. It includes the worldsac centrist men and women. The Silicon Valley before Silicon Valley was bell labs in murray hill, new jersey. As author john gergner says, its where the future which we now call the present was conceived and designed. Tonight gertner talks about his book the idea factory and bell labs with dave iversons. Id like to ask you, if you would, john, just to begin by reading the first paragraph of the book from he