Transcript: Monday, May 19, 2014

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


SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: No deal. AstraZeneca rejects Pfizer’s sweetened and final offer for the British drugmaker, leaving many investors wondering what Pfizer (NYSE:PFE) will do next.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: From no deal to a done deal. AT&T (NYSE:T) acquires DirecTV in a merger that could redefine the industry and the shape of the future of television.

GHARIB: And charged with cyber-spying. For the first time ever, the U.S. has accused Chinese military members of conducting economic cyber crimes against American companies. Which firms were hacked and why were they targeted?

We have all that and more tonight on NIGHTLY BUSINESS REPORT for Monday, May 19th.

MATHISEN: Good evening, everyone. And thanks for joining us.

Modest gains in stocks today, but that’s not what people on Wall Street were buzzing about. Much of the talk was about two members in the Dow Jones Industrials Average, both household names, both pillars of the U.S. and global economies and both involved in massive multibillion dollars that could transform their business model and industries, but only one of those companies appears to have a deal.

The other, no deal — and that’s where we start tonight. After months of negotiations and multiple sweetened offers, Pfizer (NYSE:PFE) received a firm no from Britain’s AstraZeneca, which said Pfizer’s latest and supposedly final offer of $119 billion to create the world’s biggest pharmaceutical company still wasn’t enough. So, no deal, with some pretty big questions remain about what’s next for Pfizer (NYSE:PFE) and AstraZeneca.


MATHISEN (voice-over): Take it or are leave it. And AstraZeneca left it, rejecting Pfizer’s sweetened and it says final offer to buy the British drugmaker, because the $119 billion price tag just wasn’t enough.

LEIF JOHANSSON, ASTRAZENECA CHAIRMAN: We decided to tell Pfizer (NYSE:PFE) that it’s $53.50. They needed to put more than 10 percent plus on the table to get the recommendation discussions. So that’s the request from our shareholders. That’s what we did.

MATHISEN: But the brush-off is leaving Pfizer (NYSE:PFE) with an uncertain future as its plan to create the world’s biggest drug company hits a major road block. Despite the setback, Pfizer (NYSE:PFE) has one more week to make another offer for AstraZeneca, a deadline established under British law.

Pfizer (NYSE:PFE) says it won’t, but it does give AstraZeneca shareholder time to turn up the heat on the board and pressure it to continue talks.

Pfizer (NYSE:PFE) also has the option to go hostile, which means taking the issue directly to shareholders, over the head of the board. But it says it doesn’t want to.

The chance of a deal completely collapsing is real. And if that does happen, Pfizer (NYSE:PFE) will be left with a ton of cash to put to work.

DAMIEN CONOVER, MORNINGSTAR EQUITY ANALYST: They didn’t want to necessarily repatriate the cash. They could also raise debt, and buy back shares and use the cash overseas to balance off some of that debt.

MATHISEN: And the outcome of this deal could leave a lasting effect on other American drug companies looking to do overseas deals that would lower their tax rate.

CONOVER: Closing the loopholes on being able to do a tax inversion for these mergers would likely mean that there will be a bit of a flurry of trying to get these deals done sooner rather than later.

MATHISEN: Without a deal, both companies may find themselves searching for big fixes because each has seen sales drop and as patents expire, they are facing more and more competition from generic drug makers.


MATHISEN: And here’s a look at how both drug makers performed today. Pfizer (NYSE:PFE) shares rose half a percent. But AstraZeneca, down 12 percent.

GHARIB: Now, the other Dow component involved in a massive acquisition today, AT&T (NYSE:T). It reached a deal to buy DirecTV for nearly $50 billion. It’s the latest merger in the telecom and television industry, changing the landscape on how consumers receive their TV shows data and wireless services.

Morgan Brennan has more on which companies may be in play for future mergers.


MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: We’ve known it was coming, but this weekend, AT&T (NYSE:T) and DirecTV officially struck a deal, marking the latest big ticket purchase in the communications space.

The deal which still has to get past regulators will create a combined company with access to over 26 million U.S. paid TV subscribers, putting it up against another emergent industry behemoth, Comcast (NASDAQ:CMCSA) (NYSE:CCS), which will have 30 million subscribers if its own merger with Time Warner (NYSE:TWX) Cable is approved. AT&T (NYSE:T) and DirecTV’s deal accelerates an emerging trend in media, consolidation.

And analysts say the entire industry is undergoing a fundamental shift as customers increasingly go online for their media consumption.

RICH GREENFIELD, BTIG RESEARCH ANALYST: This is all about broadband. You know, we’re living in a broadband world. When you talk about the Time Warner (NYSE:TWX)/Comcast (NASDAQ:CMCSA) (NYSE:CCS) transaction, no one is talking about how many video households they have, how much better video service they can offer. It’s all about what is the potential of broadband in this country and what can that bigger company do if terms of getting into a Wi-Fi footprint to provide wireless access to that broadband.

BRENNAN: AT&T (NYSE:T) will be able to more rapidly build out its video services, while DirecTV would access the telecom’s broadband infrastructure. That raises questions about Dish Network, which doesn’t have the Internet capabilities to compete but does have the wireless airways that telecom companies might want.

Today’s news is already fueling reports that Dish could be in talks with Verizon (NYSE:VZ), a move that could, if realized, spur yet another deal.

AT&T’s announcement also raises questions about regulators and whether two major mergers will slowdown the review process and possibly impede yet another acquisition, Sprint’s interest in T-Mobile U.S.

GENE URCAN, CAPPELLO GROUP: I think it’s a good time to get deals through the regulators as there’s going to be very little pushback and clearly they’ve been supporting consolidation. So, I think this deal is going to dictate the way a lot of other deals play out in the space.

BRENNAN: But one thing is certain, as consumers increasingly turn to the Internet to stream video, media companies are seeking ways to build out their video services. And see infrastructure to distribute them.

For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan in Los Angeles.


MATHISEN: And Rich Peterson joins us now to talk about today’s episode of deal or no deal. He’s director of S&P Capital IQ.

Rich, welcome. Good to have you with us in studio tonight.

Let’s talk first about the Pfizer (NYSE:PFE) deal. This one looks like it may not take place. But I’m wondering what your spidey sense is. Do you think this is a tactical retreat?

RICH PETERSON, S&P CAPITAL IQ DIRECTOR: Well, the key word there is final. What does “final” mean?

MATHISEN: What does “final” mean?

PETERSON: What does “final” mean? You know, according to takeover panel in the U.K., the final proposal is the final proposal. But that’s the keyword — is that a proposal or an offer? So, the lawyers are going to hash that out in the next few days.

MATHISEN: If it turns out that it is the final and they go away, they go their separate ways, what does Pfizer (NYSE:PFE) do then?

PETERSON: Well, a couple of options. Obviously, they have to wait six months before another proposal, then you have disgruntled shareholders, many of which are big institution. Number one being Blackrock. Blackrock is the biggest shareholder of Pfizer (NYSE:PFE) — or AstraZeneca’s shares, owning 8 percent. So, they’d be very disgruntled, the fact that the shares dropped 8 percent today.

GHARIB: But do you think that Pfizer (NYSE:PFE) decided not to go hostile, is it because it’s just harder to do, it takes too long, and that they are under this time pressure, they have to do a deal with somebody as soon as possible?

PETERSON: Well, I think the question is hostile deals by their nature are very difficult to consummate.

GHARIB: Right.

PETERSON: I think our data over at S&P Capital IQ shows only about a 20 percent, 25 percent success rate for a hostile deal. They really — the board on board so to speak.

This fact is, they want to do this deal in part to do the corporation inversion to try to take advantage of the lower tax rates that you can offered.

Now, other firms haven’t done that. Actavis acquired Warner Chillicothe a couple years ago, in the manufacturing side.

So, it’s up to the management of Pfizer (NYSE:PFE) to make the determination how soon, you know, will they make a decision to go hostile or shareholders to come on board?

MATHISEN: Let’s talk about the AT&T (NYSE:T) and DirecTV deal. In the piece there, that Morgan sent, Verizon (NYSE:VZ) now ball in your court. Are they likely to go after Dish which has been sort of in play at various times over the past few years?

PETERSON: Well, as we’ve started talking, it’s kind of funny, AT&T (NYSE:T) 30 years after the baby bells were broken up. Here AT&T (NYSE:T) is coming back into —

MATHISEN: It’s like Godzilla returning every few years.

GHARIB: Bigger is better, is that the case here? Bigger is better. You have to have scale?

PETERSON: You are talking about Verizon (NYSE:VZ). I think the difficulty is there. They required a stake in Verizon (NYSE:VZ) Wireless for $130 billion —

MATHISEN: Vodafone deal, yes.

PETERSON: Vodafone deal, that Vodafone owned. So they’re trying to put that into their, under their umbrella. I think, you know, with Dish Network, you talk about a check for it. We have only so many pieces left on the board.

The fact with Dish to talk about Verizon (NYSE:VZ), but I don’t think that’s happening. They talk about Softbank, or Sprint, which is owned by Japan’s Softbank or T-Mobile, which is owned by Deutsche Telecom, both international players that parents may not be too apt to look for that deal.

GHARIB: A lot of people are saying whatever happens with Verizon (NYSE:VZ) whatever they do next, the next wave of mergers will be like with the networks, PBS, maybe FOX, maybe Netflix (NASDAQ:NFLX). Do you see it that way?

PETERSON: Well, I think one factor is private equity. Now, we are talking about who is the other players? Now, private equity is something on the order of $300 million of dried powder, unused capital to put to work. Now, that’s — you know, the nature of private equities. It’s to be active in the media center. Most deals are consumer discretionary, some energy this year. But that could be an interesting to take a look at that.

MATHISEN: Rich Peterson, thanks very much. Great to see you.

Rich Peterson is with S&P Capital IQ.

GHARIB: On Wall Street, those headline-grabbing mergers we told you about gave stocks a modest boost, enough to lift the Dow Transportation index to a fresh all time high. The Dow added 20 points, the NASDAQ was up 35, thanks to gains in Internet and biotech stocks, and the S&P was up seven points.

Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) have called a truce at least for today, and at least on one issue that two tech titans have agreed to drop multiple patent infringement lawsuits they filed against each other. Apple (NASDAQ:AAPL) has called Google’s Android operating system a copy of its iPhone system, while Google’s Motorola mobility unit has filed a series of lawsuits against Apple (NASDAQ:AAPL) for stealing its mobile patents.

Now, the truce does not apply to Apple’s long ongoing and longstanding litigation against Samsung over illegal patent use.

Now, in other Google (NASDAQ:GOOG) division is making news today, Google’s YouTube unit is reportedly paying $1 billion in cash to acquire Twitch. It’s a videogame streaming service.

But what exactly is Twitch? Who uses it and why is it worth all that money?

Josh Lipton explains.


UNIDENTIFIED MALE: That was exciting, but not exciting.

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Most people couldn’t answer this question, what’s the post-popular video channel on Google’s YouTube? The answer is Twitch.

Twitch is best known for streaming live videogame tournaments, where gamers can watch others play. This is a big market. As many as 1 million people sometimes watch these tournaments which can last up to 10 hours, and that’s exactly why Google (NASDAQ:GOOG) is now reportedly thinking of spending $1 billion to buy Twitch.

MICHAEL PACHTER, WEDBUSH SECURITIES: Google (NASDAQ:GOOG) obviously is interested if broadening its reach, broadening the reach of YouTube. Twitch I know is the largest YouTube channel. So, more activity on YouTube is on twitch than any other channel.

UNIDENTIFIED MALE: It’s within striking distance here.

LIPTON: Twitch hasn’t been around long, but it has 45 million unique visitors per month, and it’s raised $35 million from investors, including Take Two Interactive, and Bessemer Venture Partners.

Twitch is one of the hottest web services in the world. And part of that is due to the loyalty and focus of the global video-gaming community, which loves its live streaming entertainment.

PACHTER: PS 4 and X-Box One, having Twitch integrated. I mean, Sony (NYSE:SNE), there is literally a button on the controller that you press and you start broadcasting. So, you know, the idea that, you know, people can watch your game session and each of those console makers sells tens of millions of consoles, you know, we forecast that each of them is going to sell 100 million or more consoles, you’re suddenly going to have 200 million people with the ability to broadcast via Twitch anytime they feel like it.

LIPTON: And at the end of the day, for Google (NASDAQ:GOOG), it’s all about building a massive and loyal audience. If the Internet giant can monetize Twitch’s huge fan base, Google (NASDAQ:GOOG) believes that can be a license to print money.



MATHISEN: Still ahead on the program, the U.S. accuses some members of the Chinese military of cyber-spying on American companies. Which companies? And why will they tell you this?


GHARIB: Credit Suisse is coming clean, agreeing to plea guilty to tax evasion charges. The guilty plea is part of a settlement with the U.S. Justice Department over allegations that it helped wealthy American clients hide money in secret Swiss bank accounts in order to avoid paying U.S. taxes.

The Justice Department has come out swinging against corporate espionage, accusing five Chinese military officials of cyber-spying on six American companies. The indictment announced today includes 31 counts of economic espionage, theft of trade secrets and aggravated identity theft that targeted companies are Westinghouse, Alcoa (NYSE:AA), U.S. Steel, Solar World, Allegheny Technologies (NYSE:ATI) and the United Steel Workers Union.

At a press event today, U.S. Attorney General Eric Holder said international business success should not be based on a government’s ability to spy and steal secrets and violators will be prosecuted.


ERIC HOLDER, ATTORNEY GENERAL: This administration will not tolerate actions by any nation that speaks to illegally sabotage American companies and undermine the integrity of fair competition in the operation of the free market.


MATHISEN: In response, China denies the charges, calling them ungrounded and absurd, and adds that the indictments will only harm China-U.S. relations.

Scott Cohn has been following today’s cyber spying charges and he joins us now.

Scott, this all sounds great. But these guys are in China.


MATHISEN: They are not going to come here and be — and subject themselves to the U.S. legal process. So what’s the point of the indictment?

COHN: The point is the largely symbolic, but it’s more than that, because they’ve laid out what the U.S. knows now. They’ve basically put the Chinese on notice, that’s what you are telling us. And while it could send the Chinese further underground the idea is to basically call them out, to say, here’s what we got. We know what you are doing, now stop it.

GHARIB: The other thing that’s kind of interesting is the industries that they targeted — Alcoa (NYSE:AA), Westinghouse, what was the other one — U.S. Steel. I mean, why are they going after these steel and also some nuclear power companies?

COHN: Well, these are areas where the Chinese have been trying to gain a competitive advantage. In some cases, according to this indictment, they did just that by basically finding out what the U.S. companies were up to. It was either U.S. companies that were pursuing unfair trade allegations against the Chinese or working on joint ventures with the Chinese.

And in the case of the United Steel Workers, they were in the process of ramping up their campaigns, sort of their PR campaign against the Chinese for unfair trade practices. Basically, it gave the Chinese allegedly a window into what all these people were doing so that they could gain back the advantage.

MATHISEN: Several of these companies, with the exception of the solar company, Pittsburgh area companies, is that coincidence? Or is that because there was a particularly active investigator working in that office?

COHN: Well, that’s a part of it. But it’s also because the steel industry is there and one of the issues China has had in aggressively competing against the U.S. on steel, is that China doesn’t compete well on costs, apparently, according to analysts that we have spoken to, unless it can find out basically the other side’s hands, see what the U.S. companies are doing.

MATHISEN: Sophisticated operation?

COHN: Well, sophisticated in that allegedly, it was the Chinese military. But the way they were getting is decidedly unsophisticated. What they called spear fishing. That’s where they send an e-mail. That looks like it’s legit. But it has a link or an attachment.

The unsuspected party clicks on that. That installs malware on their computer and the Chinese are in.


MATHISEN: All right. Scott Cohen, thank you very much.

GHARIB: Now, even with those cyber spying allegations, U.S. officials are busy trying to secure billions in Chinese investment dollars to repair the U.S. crumbling infrastructure. But despite the efforts, it may not be easy.

Eunice Yoon has more.


EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: As one of his first acts as the new U.S. ambassador to China, Max Baucus is trying to building up a plan to rebuild America’s infrastructure.

MAX BAUCUS, U.S. AMBASSADOR TO CHINA: The United States is more than opened for business. We would like foreign investment, in this case, especially Chinese investment.

YOON: This day in Beijing, the former senator from Montana, is wooing Chinese investors and matching them with officials from California, Texas, Arkansas, Massachusetts, Washington, D.C.

BAUCUS: America really needs the repair its infrastructure. The roads and highways, businesses, airports need repair and need to be rebuilt in many case. We know that. That frankly means a huge opportunity.

YOON: Baucus’ push is part of President Obama’s efforts to ramp up the nation’s infrastructure for long-term economic growth. Because of concerns about rising deficits, that spending has been limited. The U.S. Chamber of Commerce believes private money, including from China, can fill the gap. It estimates America needs at least $8 trillion to modernize transportation, energy and water systems through 2030, the biggest upgrade, it says, since the 1950s.

JEREMIE WATERMAN, GREATER CHINA U.S. CHAMBER OF COMMERCE: Given our projections of massive infrastructure needs, China’s important as the source of global capital and infrastructure goods and services and the needful advantages to be realized, substantial opportunities should develop.

YOON (on camera): The U.S.’s push comes as Chinese companies are looking to diversify their investment and when Beijing is encouraging its own builders to pursued their ambitions and compete on a global stage.

(voice-over): But many companies here say they feel unwelcome. Relations between the U.S. and China are tense over foreign policy, cyber spying and trade. Some Chinese firms fear their investments would face unfairly tough scrutiny in the name of national security, in an industry that’s seen as sensitive.

Baucus, a long-time Washington power broker, though, remains upbeat.

BAUCUS: Where there’s a will, there’s a way.

YOON: For NIGHTLY BUSINESS REPORT, I’m Eunice Yoon in Beijing.


MATHISEN: Urban Outfitters (NASDAQ:URBN) profit tumbled 20 percent last quarter and that is where we begin the night’s “Market Focus”.

The teen retailer and parent of Free People and Anthropologie reported higher expenses that overshadowed a rise in revenue, but sales at the namesake brand continued to decline. Shares were lower after the close. During the regular session the stock was off slightly at $36.17.

Shares of InterMune (NASDAQ:ITMN) jumped on positive drug test data. The company said that its experimental medicine to treat a fatal lung disorder had positive results in the late stage trial. The drug maker will resubmit the treatment for approval now in the U.S. The stock up almost 13.5 percent to finish at $38.92.

And Campbell’s Soup posted weaker than expected quarterly sales. Increased promotions failed to drive growth in the soup unit. The company also lowered its full year guidance outlook disappointed investors. The shares fell more than 2 percent to $44.06.

GHARIB: Going to the happiest place on earth just got a little more expensive. Disney (NYSE:DIS) raised the price of a Disneyland single day California park pass by $4 to $96. The cost of parking and annual passes are up as well. Shares at Disney (NYSE:DIS) rose a fraction to $81.05.

Deutsche bank revealed plans to raise $11 billion in new capital from investors and the royal family of Qatar in an effort to strengthen its balance sheet. The move comes amid uncertainty about the cost of regulations and the need for funds to expand its investment business. Shares fell more than 1 percent to $41.66.

MATHISEN: GoPro, the company behind the wearable action camera, has filed to go public. According to paper submitted to regulators late today, the company plans to raise up to $100 million in an initial public offering of common stock. It will trade on the NASDAQ.

The board at Target (NYSE:TGT) stores is drawing line on executive pay. The company is revamping compensation plans for current exec and cutting last year’s pay for ousted CEO Greg Steinhafel by more than a third after shareholder complaints that he was making way too much, especially after mishandling that massive credit card data breach.

MATHISEN: And the cold wars are apparently heating up. Pepsi just unveiled a new high-tech dispensing machine. It’s called Spire (NASDAQ:SPIR). It takes direct aim at Coke’s free style beverage fountain that lets people make their own custom blend soda.

PepsiCo CEO Indra Nooyi says the Spire (NASDAQ:SPIR) will help expand its beverage business into restaurants, movie theaters and other food and drink retails.


INDRA NOOYI, PEPSICO CHAIRMAN & CEO: What we can do is drive more top line growth because we get more food service accounts. But within food service accounts, we can drive incidents so we can get more beverage sales. So, it’s going to be a big win-win.


MATHISEN: Pepsi had a lot of catching up to do. Coke’s free style machines have already been out for four years with 20,000 of them already in the marketplace.

And coming up, what happens when some of the smartest high school students in the country get asked complicated economics questions. The answer is just ahead.


GHARIB: Former Federal Reserve Chairman Ben Bernanke says there is no need tore the central bank to shrink its balance sheet when rates finally start rising. Bernanke told the Monetary Policy Conference in Dallas that when the time comes for the Fed to finally raise interest rates, there is no need for the Fed to reduce its $4 trillion balance sheet in order to normalize U.S. monetary police. The former Fed head added that raising rates means the economy is getting back to normal.

MATHISEN: Well, it may have been a long time ago. But even Ben Bernanke was once a high school student just learning about economic policy. Now there is the annual National Economics Challenge, bringing thousands of teens across the country to compete over their knowledge of the economy and how it works.

Steve Liesman, who knows a little about that, has more on today’s finals in the 14th annual competition.


STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Under what conditions is it difficult for monetary policy to have an effect on —

UNIDENTIFIED MALE: You have five seconds. You may not confirm.

UNIDENTIFIED MALE: Liquidity trap?

UNIDENTIFIED MALE: That is correct.

LIESMAN: Take a bunch of ridiculously smart high school students from Carmel, Indiana.

CHRISTINE WANG, CARMEL, INDIANA: My name is Christine Wang and I like to fold origami.

LIESMAN: Put them against a group of highly intelligent kids from Bellaire, Texas.

PATRICK GIRARDET: My name is Patrick Girardet and I really like playing “Guitar Hero”.

LIESMAN: After a bunch of excessively complicated economic questions and what do you get? The National Economic Challenge.

Teens from all over the country as far away as Hawaii, Indiana, Alabama, and as close as right here n New York competed for these trophies. Think of it as a spelling bee for economics. Can you spell the Bacardi equivalent?

It’s all put on by the not for profit Council for Economic Education. They teach teachers how to teach economics to kids.

NAN MORRISON, COUNCIL FOR ECON. EDUCATION PRES. & CEO: They learn about pricing, about immigration, about the Federal Reserve system, all of the things that they will need to learn and know how the economy around them is working. Plus, they actually have a lot of fun.

LIESMAN: Carmel took a commanding lead on this question — what type of good or resource has the traits of being non-excludable and rival?

UNIDENTIFIED MALE: Economy resources.


LIESMAN: And Bellaire came back to tie it.

UNIDENTIFIED MALE: And once again, we are tied with one question remaining. It is 11.

LIESMAN: And eventually win on the question.

On the components of GDP, which is the most important for long-run economic growth?

Wait, before we tell you the answer, do you know it at home? You have five seconds, three, two, one —



UNIDENTIFIED FEMALE: Congratulations, Bellaire. You are the national champions again.

LIESMAN: And the prize, not a trip to Disneyworld, but something that might have been better for these kids, ringing the closing bell on the New York Stock Exchange on Wall Street.



MATHISEN: I got not of them right. Not one of them. Not one —

GHARIB: Those kids that come over here.

MATHISEN: Yes, we got to get him — hire them as researchers. They’re set.

GHARIB: That’s NIGHTLY BUSINESS REPORT for tonight. They’ll do better than that, I’ll tell you.


GHARIB: I’m Susie Gharib. Thanks for watching.

MATHISEN: And I’m Tyler Mathisen, an economic dunce. Have a great evening, everybody. We’ll see you back here tomorrow night.


Nightly Business Report transcripts and video are available on-line post broadcast at The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2014 CNBC, Inc.

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