Transcript: Friday, May 9, 2014

NBR ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and
Susie Gharib, brought to you in part by —


Apple (NASDAQ:AAPL) reportedly in talks to make its largest acquisition
ever in the music business. But why does the company that created iTunes
and the iPod need this deal?

Publicis and Omnicom called off their $35 billion merger. Is it a sign
that other cross-border deals may also run into trouble.

GHARIB: And bargain hunting. With the Dow closing at a record, our
market monitor has a list of cheap stocks that he says could soar 50
percent in the next year or so.

We have all that and more tonight on NIGHTLY BUSINESS REPORT for
Friday, May 9th.

MATHISEN: Good evening, everyone, and welcome.

What a finish to the week. The Dow Jones Industrial Average closes in
record territory, more on that in a moment.

But first, it looks like Apple (NASDAQ:AAPL) may sing a new tune, the
company reportedly close to a deal to buy the headphone maker Beats
Electronic, founded by rapper Dr. Dre and the record producer Jimmy Iovine.
Price tag: more than $3 billion.

Apple (NASDAQ:AAPL) investors not taking a shine to the news, sending
Apple (NASDAQ:AAPL) shares nearly half a percent lower today and that
reaction is raising questions about what Apple (NASDAQ:AAPL) is really
after in this acquisition? Is it the high end headphones or with the
digital downloads on iTunes flattening out a bit. Maybe it is Beat`s new
music streaming service. Or is Apple (NASDAQ:AAPL) just trying to reassert
its cool factor by joining forces with a hip-hop mogul and a record

Morgan Brennan takes a closer look at Beats and what the folks at
Apple (NASDAQ:AAPL) may really be after.


Dr. Dre may be most famous for his music, but it is his Beats by Dre
headphones that could make him hip-hop`s richest man. That`s because tech
giant Apple (NASDAQ:AAPL) could buy Beats Electronics for as much as $3.2
billion. If the deal goes through, it would be the most Apple
(NASDAQ:AAPL) ever paid to acquire the company.

So what is Beats? The company makes high end headphones that already
retail at Apple (NASDAQ:AAPL) stores for hundreds of dollars.

In January, it launched a music streaming service that competes with
Apple`s own iTunes radio. But analysts say the products may not be the
valuable part of this deal. Instead, it may be more about the talent.
Namely, Dr. Dre`s co-founder, Jimmy Iovine, the chairman of Universal
(NYSE:UVV) Music Group`s record labels, and one of the industry`s earliest
adopters of new media platforms. He`s reportedly in talks to join Apple
(NASDAQ:AAPL) team in a creative role.

GENE MUNSTER: If you look at it at face value, it`s just a bad idea.
If you take it a step further and think about the — what it adds to their
management team it starts to make sense, albeit a very expensive hire.

BRENNAN: This deal would represent a department for Apple
(NASDAQ:AAPL), which typically builds its own hardware internally rather
than acquire it. Not to mention to fact that iTunes radio itself only
launched last fall. Talent or not, that`s got analysts are skeptical.

But Beats did pull in a reported $1.2 billion in revenue last year.
And its brand isn`t just recognizable among consumers, it`s even considered

UNIDENTIFIED MALE: I think it`s very dope.

UNIDENTIFIED FEMALE: Oh, I think it`s very exciting news. Apple
(NASDAQ:AAPL) is a great company. And I think the combination of the two
will be awesome, both companies.

UNIDENTIFIED FEMALE: I just hope that doesn`t mean prices go up.

UNIDENTIFIED FEMALE: I think that means prices go up.

UNIDENTIFIED MALE: Apple (NASDAQ:AAPL), it will still be in the same
position, I will still be broke, so yes, I`ll try to save up for it.

BRENNAN (on camera): But a deal is not done yet. Sources say an
official announcement could come as soon as next week. But negotiations
could also still fall through.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan in Santa Monica,


GHARIB: Scott Kessler sees plenty of harmony between Apple
(NASDAQ:AAPL) and Beats. He`s equity analyst at S&P Capital IQ.

Scott, you know, this subject all day was getting debate on both
sides. Either you love the deal or you hate the deal and you just heard
Gene Munster in Morgan`s package saying it`s a bad deal.

Now, why do you love this deal?

love the prospects of the deal, Susie, but I do see a lot of positives.
Most notably, Apple (NASDAQ:AAPL) is already in the business that Beats is
focused on, or at least Beats Electronics is focused on, as well as Beats

So, first of all, you have the accessory business. It generated about
$1.3 billion in revenue for Apple (NASDAQ:AAPL) in the March quarter. And
obviously, that`s Beats` bread and butter, right? They make headphones and
earphones and speakers, and Apple (NASDAQ:AAPL) felt a lot of those.

So, obviously, we`re moving the kind of middle man from that process,
makes those products more profitable for Apple (NASDAQ:AAPL).

But I think more importantly on the product side is the Beats
streaming service that you referenced. It`s newly launched but I think
it`s something that Apple (NASDAQ:AAPL) has been taking a close look at. I
think they`re very interested in trying to kind of better pursue and
successfully execute on a non-download digital music strategy, iTunes radio
we think has garnered mixed reviews.

MATHISEN: Right. All right, be honest now, would Steve Jobs do this

KESSLER: I tend to doubt it, Tyler. I think this is the type of deal
in the last year or two, it seems like Apple (NASDAQ:AAPL) really has lost
its kind of cache from a brand perspective, and even from a product
perspective. And that`s one of the reasons we think they`re considering
such a transaction.

When you think about Beats and you think about what Apple
(NASDAQ:AAPL) has been doing over the last year, they hired the CEO the
former CEO of Yves St. Laurent. They hired the CEO, the former CEO of
Burberry. And they look for someone to promote buzz marketing, to
basically get the company letter aligned with — let`s say — luxury
clientele and a greater visibility across celebrities. That`s something
that`s important to them and I think Beats helps them do that.

MATTHEWS: Susie and I are available for a lot less than $3 billion.

KESSLER: All right. You should get in touch with them.

GHARIB: Happy (ph) to sign up.

So, Scott a lot of people have been watching Apple (NASDAQ:AAPL) stock
wondering what`s going to be the next big thing to move the stock. It
crossed over $600 early this week, everybody was so excited. It pulled
back a little bit.

There is a developers` conference coming up next month. Is anything
going to come out of that, whether it`s an iPhone or some new product that
gives them amps up the stock?

KESSLER: Right. So, the way we think about the next couple of months
for stock for are Apple (NASDAQ:AAPL), initially we completely acknowledge
that the worldwide developer`s conference that you referenced is coming.
It`s only weeks away really at this point.

But that`s really more a gathering focused on software and services.
And so you could see new operating systems announced. You could see new
features to various Apple (NASDAQ:AAPL) offerings announced, like apps, for
example, and new enhancements. But we don`t see new actual hardware
products being announced at this confab.

However, we do expect within the next couple of months that Apple
(NASDAQ:AAPL) might make three key announcements.

One is going to be a new iPhone. We expect it to have a bigger
screen. People are looking for that.

Number two is practically new iPads. We think that people are looking
for a refresh of that product line.

And then, perhaps, most importantly, we look for Apple (NASDAQ:AAPL)
to announce its entry into the wearables category, perhaps something most
of us would think of as an iWatch, so to speak.

GHARIB: OK. We`re all waiting for all those products.

Scott, thanks so much for coming on the program.

KESSLER: Thanks very much. Take care.

GHARIB: Have a good weekend. Scott Kessler of S&P Capital IQ.


MATHISEN: Stocks wrapping in an up and down week with all the major
averages seeing modest gains today. But that was enough, modest though it
was, to push the Dow to a fresh all-time closing high. The NASDAQ and S&P
500 finished the week just a little bit lower.

Let`s take a look now at how the markets settled today. The Dow
gained 32 points, closing record high of 16,583, NASDAQ up 20 on the
rebound in momentum stocks, and the S&P added a modest two points.

GHARIB: Allergan (NYSE:AGN) shares were lower on reports that it
might reject a $46 billion takeover offer from Valeant Pharmaceuticals.
The maker of Botox could reportedly turn down the offer as soon as Monday.

If that`s the case, it would be a big blow to Valeant and Bill Ackman.
He`s the activist investor who teamed up with the drug maker for the
takeover attempt.

MATHISEN: A lot of talk today on Wall Street about a cross border
mega merger in the advertising world that was just called off just as the
fate of two other big international deals hang in the balance. The
business world may be flatter. But rising political sensitivities may be
keeping some deals from getting done.

Mary Thompson has the story.


When New York based Omnicom and France`s Publicis announced their merger
vehicles last July, they expected their size and scales would help them
better compete with Google (NASDAQ:GOOG) and Facebook (NASDAQ:FB) in the
fast-growing world of digital advertising. Nine months later, Omnicom CEO
said old world problems took down the deal.

JOHN WREN, PRESIDENT & CEO, OMNICOM: If I summarized in a tweet, it
would be corporate culture, complexity, and time. And I would still have
100 characters left.

THOMPSON: Publicis CEO Maurice Levy had a different take blaming it
on Omnicom.

MAURICE LEVY, PUBLICIS CEO: One of the principles was that there
would be equality in the management team. This has not been the case in
the proposal. And I was going back and forth to try to convince them that
we should have equality. And it was impossible to get that quality.

THOMPSON: Complicated from the start, the deal would have created the
world`s largest ad agency with co-CEOs in New York and Paris. It was to be
headquartered in the Netherlands, and tax residency would have been in the
more favorable U.K. Wren blamed the politically charged tax environment in
Britain as another reason the deal fell apart, though M&A attorney Frank
Aquila downplays politics as a problem.

FRANK AQUILA, SULLIVAN E. CROMWELL: Every deal has political
challenges. Even if you do domestic deals, there are regulatory issues,
sometimes political issues.

But those really are not the factors by and large that determine
whether or not deals get done.

THOMPSON: Still, two other cross border bids are fanning the
political fires these days. Pfizer`s $100 billion offer for British rival
AstraZeneca, raising fears about the corporate exodus from the U.S. This
after Pfizer (NYSE:PFE) cited one of the deal`s advantages has been the
billions of dollars in tax savings it would reap with the headquarters in
the U.K.

(on camera): So, any debate about whether this deal gets down
revolves around whether Pfizer (NYSE:PFE) will race its low-ball price.

(voice-over): Meanwhile, G.E.`s $17 billion bid for the power assets
of France`s Alstom unleashed an emotional outpouring, with people concern
about a French industrial treasures being bought by a U.S. conglomerate, an
outcry CEO Jeff Immelt doesn`t see it scuttling G.E.`s bid.

JEFF IMMELT, G.E. CEO: We`ve done a lot of deals in Europe over time
and we`re pretty experienced in this type of stuff. So, I think we`ve got
a good offer and I think it will be executed.

THOMPSON: Politics may make great theater, but in business, pricing
power drives the final outcome, for now.



GHARIB: We have another wrinkle about Pfizer`s proposed proposition
on rival drug maker AstraZeneca. It turns out the number of people who
could lose their jobs if the merger goes through. The governors of
Delaware and Maryland want Pfizer`s chairman to come clean on how the deal
would impact workers in their state.

AstraZeneca has more than 2,000 employees in Delaware. Pfizer
(NYSE:PFE) has more than 3,000 in Maryland.

MATHISEN: Still ahead, small cap stocks closing in on correction
territory. Is it a warning sign to investors that a broader pullback is


MATHISEN: The Labor Department says the number of job openings ticked
slightly lower in March to just over 4 million, but the share of workers
who left their jobs rose presumably for a better one. Analysts say that is
a sign of strength in the job market.

GHARIB: Ralph Lauren posted an earnings beat but the retailer offered
a disappointing outlook. That is where we begin tonight`s “Market Focus”.

The company expects global revenues to rise between 6 percent and 8
percent next year but it warned operating margins would decline as it
spends money to build up its network of stores and that overshadowed an
otherwise good earnings report. Shares fell about 2 percent to $148.81.

Shares of Hilton Worldwide were up after the hotel operator announced
earnings and revenue that both topped estimates. First quarter estimates
almost tripled, thanks in part to higher rates. Hilton also raised its
full-year forecast as it expects a pick up in business and leisure travel.
That pushed the stock up almost 2 percent to $23.07.

And Bloomin Brands says quarterly traffic fell 15 percent. Traffic
decreased at its outback steak house restaurant chain. Like so many
companies this earning season, it blamed it on the harsh winter weather,
also a shift in holiday timing negatively affected the quarter. Shares
fell 2 1/2 percent to $20.89.

MATHISEN: Vivus (NASDAQ:VVUS) is facing a generic threat from drug
maker Actavis. The company plans to market a generic version of Vivus`
obesity drug. In response, Visas says it will move to enforce intellectual
property rights. Shares of Vivus (NASDAQ:VVUS) tumbled almost 3 percent to
$5.22. Actavis is down to $196.18.

RadioShack scaling back its plan to shutter as much as 1,100 stores
because it was unable to reach an agreement with its lenders. Its current
loan covenants require lenders to sign off on more than 200 store closings
a year. Shares plunged 9 1/2 percent to settle at — get this — $1.33.

Netflix (NASDAQ:NFLX) is raising its Internet video prices by a dollar
a month for new customers, and giving current subscribers a two-year break
for many price hike. The company already announced it would up its rates
last month, but we didn`t know how much, until today. Now, we do. Shares
more than 2 percent to $328.55.

MATHISEN: On a day when big cap stocks in the Dow closed at a record
high, smaller cap stocks in the Russell 2000 Index have gotten hammered

And as Dominic Chu explains, this is the trend that`s worrying many
Wall Streeters.


are pointing to a small sign that could have a big impact in the stock
market in the coming months, they`re looking at small cap stocks. Small
cap stocks are loosely defined as ones that have a market value of around a
little over a billion dollars on average.

The Russell 2000 Index tracks these types of companies. It`s had a
rough go over the last couple of months. Since hitting record highs, now,
it has fallen close to 10 percent in value — what many traders call a
market correction.

Small cap stocks are important because they`re viewed as a possible
leading indicator for where the rest of the stock market is headed. The
big concern is that the drop in small cap stocks could lead to a drop in
other parts of the market.

Take a look at the chart of the Russell 2000 versus the large cap S&P
500. Historically, they trade pretty much in tandem. But now, they`re not
and some estimates blame it on economic worries.

divergence between the Russell 2000 and the S&P is because the markets now
saying the Feds is done easing and that the economy has got to carry the
ball, and in that environment there is less margin for error. So, small
caps are going to have a little bit more of a struggle until the economy
shows strong signs of growth.

CHU: Among some of the harder hit stocks in the smaller cap world are
well known names, like luxury auction house Sotheby`s, which has lost a
quarter of its value just in 2014 alone. Then, there`s snowmobile maker
Arctic Cat (NASDAQ:ACAT), which has lost about a third of its value in that
time. And teen apparel retailer Aeropostale (NYSE:ARO), which has been cut
in half.

The latest market declines may have created an opportunity. And there
is not as much fear that the selloff will have the ripple effects in the

encouraged that this has not spread to the broader market, doesn`t look
like it will, principally because we don`t have the fundamental catalyst to
do that.

CHU: The tug of war between the bulls and bears continues, and for
now, the bulls seem to be winning the battle. But small caps remain a key
part of the market to keep a very watchful eye on.



MATHISEN: Our market monitor tonight says it`s hard to fine value in
the stock market right now, but he`s still finding some gem.

He`s Patrick Kaser, portfolio manager at Brandywine Global.

Patrick, welcome. Good to have you with us.

You just heard Dominic`s report, he says — pointed out that a lot of
the smaller stocks have rolled over. Do you think they represent the
better values or the big guys?

large cap stocks which my team at Brandywine works on the most, I think the
large cap stocks are still the best place to find value in the market. A
lot of the small caps have gone from tremendously over-valued to just
slightly over-valued, perhaps. So, we still think the bigger higher
quality companies offer the most attractive returns going forward.

GHARIB: You have a couple of stocks you want to give as examples.
And it seems like the running theme is that you`re looking for the

And at the top of your list is Toyota (NYSE:TM). And you say this is
one of the cheapest stocks in the world. Make your case.

KASER: Yes, absolutely. So, Toyota (NYSE:TM) today is about $108,
109. One interesting thing to this, $40 of cash, net cash on the balance
sheets, so you are really only paying $68 or $69 for the actual business.
Earnings for the last 12 months are $11.50 to $12. Depending on how you
treat some of the charges, you`re really paying 5 1/2, six times on
earnings. So, a very, very low P/E relative to a market P/E that`s more
than twice that.

The number one audit company in the world, tremendous balance sheet,
very conservative management. As we look forward with the cash there, in a
year or so, we think we`re going to start buying back stocks. We think you
can make 50 percent or more easily in this if you`re a long-term investor
every two or three years.

MATHISEN: You`ve got a $70 a share price target on Citi. How soon
could it get there? And this is a stock that to me feels like a very, very
risky choice.

KASER: Yes. Well, so, it obviously is a stock that`s been in the
headlines, but a lot of times, the best opportunity for investors are
things that nobody likes. The things that people think are not going to

So, with Citigroup (NYSE:C), obviously, has been in the headlines for
the Mexican fraud, for failing the stress test, but we think they can earn
$7 in a couple of years. We think that at $46, $47 a share, you`re paying
seven times future earnings power.

The other thing is, you think about risk, Citigroup (NYSE:C) is the
only major bank trading below tangible book value. So, tremendously cheap
relative to other banks and against the market.

GHARIB: Let`s talk a little bit about MetLife (NYSE:MET). This is a
stock at $51. It`s pretty much trading today, where it was in January.
So, it`s been kind of flat for the year.

What`s your target on this stock and why should investors put them
fresh money into MET?

KASER: Yes. Again, so, the three I mentioned today all — we all
think they have 50 percent upside over the next 12 to 18 months perhaps.
Met, again, much cheaper in the market, again, some controversy around it.
It hasn`t been — it`s got a lot of excess capital, a lot of extra funds.
It hasn`t been buying back stocks, just waiting to see what rules the
Federal Reserve puts out there for insurers.

But in the meantime, it`s trading right around book value again. So,
we think not a lot of downside. It`s trading at less than 10 times
earnings. P/E of less than 10. Again, very cheap relative to the market.
We think that once there`s some certainty out of Washington, that they will
begin buying back stock and it will be a tremendous opportunity for

So, all three of these stocks again very cheap. Some controversy, but
that is really where I think value investors and investors that have a
longer time frame in general can find the opportunity.

MATHISEN: You want to exploit those headlines, don`t you, Patrick?

KASER: We absolutely do. That`s one of the things we do here at
Brandywine, is to try and move against the grain, but stay high quality and
the names that people know.

MATHISEN: Takes some steely nerves to do that. I know you`re sort of
a bottoms up stock picker, or I sense that. But you must have some view on
economic growth and interest rates, would you share it with us?

KASER: Right. Yes, absolutely. I mean, when you`re buying big
companies, the single biggest determinant of their result is the economy,
so we absolutely do have macro economic use on those drive, how much
conviction we have in our research. So, when we look at the economy and we
look at the interest rates especially for the two financials, we think
long-term interest rates, particularly long-term interest rates rise.
That`s very good for Citi and MetLife (NYSE:MET).

But more importantly, we think the economy is going to grow at a
moderate pace. There`s been a lot of debate over the last few months, was
it a winter slowdown? Is it right now just a temporary balance? But right
before I came on the air, I saw that the Federal Reserve loan data, it
appears that commercial and industrial loans are still accelerating.
Commercial retail estate ones are still accelerating.

We believe the economy is gaining momentum. And so, while we have had
this debate in the market, where we`ve been in a choppy period, side ways
overall, we do think that resolves itself. We don`t think this is one of
those years where it is sell in May and go away. We think this is a year
where as people become convinced that the economy really is doing well and
picking up speed, that the market will do better in the second half of the

MATHISEN: Patrick, do you have disclosures on those three stocks,
Toyota (NYSE:TM), Citi and Met?

KASER: Yes. You know, we — as a firm, we own shares in all of them.
Because I invest in Brandywine`s products, I own shares personally of them.
But Brandywine does not have any banking relationships.

MATHISEN: All right. Patrick, thank you so much for being with us.
Patrick Kaser with Brandywine Global.

GHARIB: And coming up, role reversal. At home, more women will
become the bread winners. At work, more will take over the corner office.

Ahead of Mother`s Day, a look at how the trend should shape the
economy for years to come. That`s next.


MATHISEN: U.S. Postal Service delivering more bad news last quarter.
Despite severe cost cutting, the agency still lost nearly $2 billion. The
volume of first class mail continued to tumble. And the federal government
was unable to offer any financial help.

A new interim CEO for the L.A. Clippers, it`s Dick Parsons, a former
chairman of Citigroup (NYSE:C) and Time Warner (NYSE:TWX) who`s now a
senior adviser at Providence Equity Partners. He will be in charge of day
to day operations of the team. This comes as the NBA is trying to force
long-time owner Donald Sterling to sell the team after he was banned from
any involvement with the league for making racist comments.

MATHISEN: And here`s a surprise, job recommendation. In a new memoir
coming out next week, former Treasury Secretary Timothy Geithner admits
that he considers stepping down from the job in 2010 after the financial
crisis and he suggested that Hillary Clinton succeed him based on her
experience as secretary of state. Geithner writes that President Obama
nixed the suggestion and Geithner remained at the Treasury for another
three years.

GHARIB: And finally tonight, with Mother`s Day this Sunday, it`s a
good time to take a closer look at the status of women in the workplace.

Steve Liesman has the story.


What seems unstoppable now is that the leaders of tomorrow are going to
women more than men and the question is, how companies will respond and the
country, especially when it comes to the controversial issue of maternity?
More men over 50 have college degrees but under the age of 35, the figure
is reverse. Forty percent of younger women have graduated college and just
32 percent of men.

This means employers who are looking for qualified talent, they`re
going to be choosing from a larger pool of educated women more so than men.

White House economist Betsey Stevenson argues making business a better
place for women is going to be essential for business.

say that when they go and interview with employers, the employers that talk
to them about how to balance their job with their families are the ones
they are most attracted to. So, women are already telling us that they are
choosing employers who are willing to make these changes.

LIESMAN: According to the National Partnership for Women and
Families, the U.S. is only one of eight out of 181 countries in the world
with no mandated pay paternity leave. The National Partnership is an
advocacy group for such a law.

The U.S. Family and Medical Leave Act passed in 1994 mandates 12 weeks
of unpaid maternity leave but only covers about 59 percent of workers that
have access to the law.

Google (NASDAQ:GOOG) is among the companies offering generous leave
when they changed their maternity leave for women in 2007, they cut their
attrition in half. So, it can be cost-effective. They extended some paid
maternity leave benefits to men this year.

There are obviously opponent to a national maternity law, some argue
the marketplace will make these changes even better than the government
will. Given the growing trends of educated women, that seems almost
certain. But some CEO say a national maternity leave law would be
preferable and cheaper to administer than 50 separate ones, and it could
make good economic sense.



GHARIB: I could talk for hours with you about that story.

MATHISEN: I bet you could.

GHARIB: It comes down to pay and power. Are we going to see more
women CEOs in the next decade? And also, we`ve got to figure out this work
balance stuff.

MATHISEN: No, definitely the case. I think women are the not-so
secret weapon of the U.S. economy. We are more engaged and have more women
engaged in the economy than many other countries. And I think that is —

GHARIB: And many of them —

MATHISEN: Happy Mother`s Day, by the way.

GHARIB: Thank you. I`m so glad you mention that.

MATHISEN: You bet I do. Are you kidding me?

GHARIB: That`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie
Gharib. Thanks for watching. Happy Mother`s Day to all of our mothers
watching the show.

MATHISEN: And from me as well, I`m Tyler Mathisen. Have a great
weekend and a happy Mother`s Day. We`ll see you Monday.

Did I say have a happy Mother`s Day?



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