SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Deal breaks down. Sprint shares plummet after ending its bid for T-Mobile. Now, the company has to find new growth the hard way.
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: And record settlement. Bank of America (NYSE:BAC) and the Justice Department are reportedly close to a deal that would cost the bank $17 billion to settle mortgage-related misconduct.
HERERA: Fight of a lifetime. What happens when unapproved drugs are the only hope for very ill patients? Tonight, we start our three-part series, “Desperate Measures”.
All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, August 6th.
Good evening, everyone. I’m Sue Herera, filling in tonight for Susie Gharib.
MATHISEN: And I’m Tyler Mathisen. Welcome, everybody.
It was a beautiful summer day on Wall Street, but not for two stocks whose prices had been plumped up by deal talk. Last night, we told you about 21st Century Fox withdrawing its $80 billion bid to acquire Time Warner (NYSE:TWX). Time Warner (NYSE:TWX) stock fell nearly 13 percent today. More on that one in a moment.
Today, we learned that Sprint has hung up on its pursuit of rival wireless carrier T-Mobile. The big reason: unlikely regulatory approval to merge the nation’s number three and number four telecoms. Shares of Sprint got slammed today, down 19 percent. Shares of T-Mobile fell, too, but a smaller more manageable 8 percent.
So, what’s next for Sprint and for T-Mobile?
Morgan Brennan takes a look.
MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The mobile wars continue, taking an unexpected turn that could leave Sprint at a disadvantage. Sources confirm that the wireless carrier has abandoned its much anticipated bid for smaller rival T-Mobile. The communications industry has been expecting the two to announce a merger, in a deal that would have valued T-Mobile at $32 billion.
CRAIG MOFFETT, MOFFETTNATHANSON: This is difficult news for Sprint. Sprint has all but abandoned almost any Plan B other than merging with T-Mobile. So, now, they’re going to have to go back, lick their wounds and come up with an operating strategy that likely means a lot more capital spending and lower prices for consumers. Those are going to do real damage to Sprint’s income statement.
BRENNAN: That pushed shares of Sprint down by double digits. Over the past several years, the company’s poured billions into a network upgrade, a process that’s caused poor service and with it, the loss of millions of monthly subscribers. Now, those upgrades are almost finished but Sprint has argued that to better compete with bigger rivals Verizon (NYSE:VZ) and AT&T (NYSE:T), it needs scale, something it hoped to get with T-Mobile.
However, regulators have repeatedly voiced opposition. And that’s what’s caused Sprint to finally scrap its plans.
But what about T-Mobile?
MOFFETT: T-Mobile is probably going to be fine. T-Mobile has right now a ton of brand momentum. It’s prices are already low, so it’s gaining market share and it’s got a lot of cost reductions ahead of it because of a merger that it did a year or so ago with Metro PCS. And so, it’s income statement and it’s balance sheet keep getting stronger as time goes on.
BRENNAN (on camera): French telecom Iliad has put an offer in front of T-Mobile for a majority stake, as well, and experts say this could present a buying opportunity for satellite TV provider Dish Network, a company that also faces increased competition, as AT&T (NYSE:T) buys its rival DirecTV and Comcast (NASDAQ:CMCSA) (NYSE:CCS) merges with Time Warner (NYSE:TWX) Cable.
As for Sprint, the company is also welcoming a new CEO, Marcelo Claure, whose Brightstar cell phone distributor was purchased by Sprint owner Softbank last year.
For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan.
HERERA: More now on that abandoned bid by 21st Century Fox to acquire media giant Time Warner (NYSE:TWX). Shares of Time Warner’s took a tumble today, falling nearly 13 percent, despite reporting a 10 percent jump in earnings last quarter, thanks to HBO and its “Game of Thrones” series.
After the bell, the latest quarterly earnings at 21st Century Fox were better than expected, thanks to its film studio and cable TV networks. Fox earned 42 cents a share, easily topping estimates. Revenues of more than $8 billion also beat Wall Street estimates. The stock was initially flat after hours but then moved higher.
Julia Boorstin was listening into the conference calls.
Rupert Murdoch was on the call. And what, if anything, did he say about the withdrawn bid for Time Warner (NYSE:TWX)?
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, Sue, he addressed the issue straight off the bat and he said the decision to withdraw that bid for Time Warner (NYSE:TWX) came down to two fundamental issues. One was the fact that Time Warner’s management and board was not willing to sit down and negotiate. And two, it was the reaction of Fox’s stock and the fact that Fox’s stock continued to decline on that news. So, he was really looking to do what made most sense for shareholders, he said.
MATHISEN: What is next for Rupert Murdoch? Is there any possibility that he might come back either later year or in the 2015 with another bid for Time Warner (NYSE:TWX)?
BOORSTIN: Well, Tyler, he also addressed those questions. There are rumors flying he doesn’t mean he’s dropping the bid. But he said, we are resolute in the decision to move on and then, Fox president and coo, Chase Carey, he echoed that. He said, this is it, we’re really moving on and really indicating that they’re not planning on going back.
Now, on the earnings call which just wrapped up, there were a lot of questions about what else they might want to buy or what their outlook is for M&A in general. They said the reason they were interested in Time Warner (NYSE:TWX) in the first place is because scale is important but they stress that they don’t need to make an acquisition.
HERERA: What about Time Warner (NYSE:TWX)? Are you hearing about what they may do next? Do they have to do anything?
BOORSTIN: Well, right now, I think the most important thing for is execute on the plan that CEO Jeff Bewkes laid out, because they really have to convince investors that it makes sense for them to go forward as a stand-alone company and not do a merger.
HERERA: Julia, thank you very much. Julia Boorstin in Los Angeles.
MATHISEN: On Wall Street today, stocks end a choppy trading session, with modest gains, despite jitters after NATO confirmed that Russia has 20,000 combat-ready troops on the eastern border of Ukraine. The major averages shrugged off a sale off in Europe and ended the day higher, but not by much. The Dow added 13, the NASDAQ higher by two, and the S&P was up by 3/100ths of one point.
HERERA: Bank of America (NYSE:BAC) is reportedly close to a deal with the Justice Department to settle allegations of mortgage-related misconduct in the run-up to the financial crisis. And the price tag of the settlement could be a record.
Kayla Tausche has the details.
KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Bank of America (NYSE:BAC) is near a multibillion-dollar settlement over allegations it underwrote fraudulent mortgages leading up to and during the financial crisis. A settlement which reports that peg between $16 billion and $17 billion would cap more that a year-long investigation, which Bank of America (NYSE:BAC) first disclosed in August of last year, disclosing an investigation by the Department of Justice and relevant state attorneys general over these mortgages as other banks at that point, too, were in the spotlight.
JPMorgan (NYSE:JPM) settling for $13 billion, Citi settling for multiples of billions of dollars as well, and now, Bank of America (NYSE:BAC) in recent weeks has seen its talks with the government ratchet up. So, we don’t have an agreement on paper just yet. That number could move around, but it would be a positive development for a bank that has had more than $50 billion in settlements, and in payments over legal issues since the financial crisis.
For NIGHTLY BUSINESS REPORT, I’m Kayla Tausche in New York.
HERERA: But there was some good news for Bank of America (NYSE:BAC) today. It was allowed to raise its quarterly dividend for the first time in seven years, from 1 cent per share to 5 cents per share. That’s after the Federal Reserved OK’d the lender’s revised capital plan, the third one it submitted this year.
MATHISEN: Russian President Vladimir Putin is retaliating against the U.S. and other countries for imposing those tough economic sanctions over the conflict in Ukraine. Russia is now limiting or outright banning the import of many types of food and other agricultural products from those very same nations.
HERERA: And China is cracking down on a number of Western companies for what it calls monopolistic behavior. But is Beijing just pressuring foreign manufacturers that have been too attractive to its Chinese consumers at the expense of Chinese firms?
Eunice Yoon has more from Beijing.
EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: China says Chrysler and Audi had been found guilty of monopolistic behavior and that the two carmakers, among others, will be punished.
The car industry is the latest to face government scrutiny as Beijing steps up efforts to enforce its anti-monopoly law and that’s put many car players on edge.
The investigations are wide-spread. The regulators are targeting pricing of cars and spare parts, but it’s unclear what the government means by monopolistic behavior or what the punishment is going to be.
In the past several days, some car makers have dropped prices, Chrysler cut the price of its top of the line Grand Cherokee (NASDAQ:CHKE) by $10,500. It along with Audi slashed prices for spare parts.
Daimler, the owner of Mercedes Benz, is also now under investigation. It dropped prices for parts by about 15 percent.
The authorities say the investigations are to protect Chinese consumers and bring companies into line with China’s anti-monopoly laws. However, they come when many foreign companies have come under government pressure, feel unfairly targeted and complain about the lack of transparency in these investigations.
For NIGHTLY BUSINESS REPORT, I’m Eunice Yoon in Beijing.
MATHISEN: Still ahead, trucking companies with safety violations that are easily able to wipe their dirty records clean. Eamon Javers has the story in the final part of our series, “Collision Course”.
MATHISEN: A sizable jump in domestic energy production is a big reason the U.S. trade deficit was lower than expected in June, and why crude prices are now at a six-month low. But how can the U.S. safeguard all that energy?
Jackie DeAngelis takes a look at one company’s efforts to protect existing oil pipelines and make sure future projects are secure.
JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): As the U.S. strives towards energy dependence, the debate on how to transport crude safely is heating up. The focus: on pipelines — how to make them more efficient and how to limit accidents.
Enbridge (NYSE:ENB) Energy Partners (NYSE:EPL) is one company leading the way, protecting its 50,000 miles of pipe using smart pigs, launched into pipes, smart pigs find stress, cracks and corrosion alerting the companies to issues before they arrive.
BRAD SHAMLA, ENBRIDGE: Smart tools are the primary source for being able to go in and really understand what’s going on with the pipeline.
DEANGELIS: Recent rail accidents and a barge accident in March that deposited nearly 170,000 gallons of crude into the Houston Ship Channel are prompting industry experts to believe that pipelines are the safest way to move high volumes of crude.
JOHN EDWARDS, CREDIT SUISSE SENIOR ANALYST DIRECTOR: I think if you look at the safety record of crude oil pipelines versus alternates, pipelines come out, you know, on top.
DEANGELIS: TransCanada’s Keystone Pipeline project has also raised the debate. While the project would bring jobs to the U.S. and transport roughly 800,000 barrels of Canadian crude a day, environmentalists worry about leaks and explosions.
(on camera): But pipeline proponents like Enbridge (NYSE:ENB), which has moved 13 billion barrels of crude through its pipes over the last decade, and is the largest importer of crude into the U.S., say safety is paramount and they are working on it every day.
SHAMLA: I could talk about the safety record in terms of those 13 billion barrels and the 99.993 percent, but we don’t talk a lot about that because we’re really focused on the very small percentage and no leak is acceptable.
DEANGELIS (voice-over): Enbridge (NYSE:ENB) has spent nearly $4.5 billion on pipeline integrity just over the last couple years.
Wall Street likes pipeline companies, too. Expansion is projected and the group on average pays distributions of 5 percent. Analysts say El Paso (NYSE:EP) Partners, Kinder Morgan, Cheniere Energy and Plains All American are just some of the stocks to watch.
One thing everyone agrees on: crude will get where it needs to go, and pipelines will grow, how quickly is the question.
For NIGHTLY BUSINESS REPORT, I’m Jackie DeAngelis in Plummer, Minnesota.
HERERA: Chesapeake Energy’s second quarter profits slides nearly 70 percent and that’s where we begin tonight’s “Market Focus”.
The natural gas producer said lower prices put pressure on its results. The company, however, raised the midpoint of its production outlook for 2014 as more wells are connected to pipelines. Shares rose slightly, closing at $26.19.
Ralph Lauren also saw its earnings fall as the retailer continued to invest in expansion efforts. The company gave guidance for the current quarter, saying it expects revenue to climb by as much as 6 percent, led by retail growth. That sent shares slightly higher to $156.88.
Cognizant disappointed investors when that company announced its expecting its slowest full-year revenue growth in the company’s 20-year history. The IT services provider blamed delays in booking revenue from some large deals. The company’s board did expand its repurchase program by half a billion dollars. But shares tumbled, nonetheless, down more than 12 1/2 percent to $43.67.
MATHISEN: Viacom (NYSE:VIA) missed earnings estimates on both the top and bottom lines. The media company says its results were impacted partly by fewer new movies. The Comedy Central owner saw a moderate gain in its cable network revenue, but not enough to offset its film slump. The stock dropped nearly 2 percent to $80.31.
Mondelez cut its 2014 sales target. The reason: price hikes to offset rising commodity costs have turned off some of its retailers and consumers, dampening demand. For the second quarter, the Oreo cookie maker saw its earnings rise as lower expenses offset declining revenue. But shares fell nonetheless to $35.70.
And shares of Walgreen (NYSE:WAG), speaking of falling, tumbled today after the retailer slashed its 2016 profit targets. That added to investors’ disappointment that the company won’t move its headquarters to Europe for a tax advantage, which we told you about last night. The stock: 14 percent lower at $59.21.
HERERA: A Russian hacker ring has stolen 1.2 billion user names and password combinations. “The New York Times (NYSE:NYT)” says a Milwaukee-based firm called Hold Security uncovered that online breach, reporting the data was stolen from more than 400,000 Web sites. It’s the largest known collection of stolen Internet credentials. Hold Security, however, did not divulge the names of the victimized Web sites.
MATHISEN: All this week, we told you how long-haul big rig trucks are increasingly on a collision course with U.S. drivers. In tonight’s final installment of our three-part series, we take a look at trucking companies with serious safety violations that were forced to shut down, only to start up again under different names.
Eamon Javers has the story.
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Kelly Linhart, a truck driver who had 15 years of experience and was the father of four, was doing a routine truck inspection in September 2008 when he was hit and killed by an oncoming truck veering off its lane.
MICHAEL LEIZERMAN, EJ LEIZERMAN & ASSOCIATES, LLC: Fell asleep by his own admission, ran off the road and ran over Kelly Linhart, dragging him to a horrible death.
JAVERS: Michael Liezerman is a plaintiff’s attorney who specializes in truck cases. He represented the Linhart family and deposed Daniel Clarey, the driver.
UNIDENTIFIED MALE: You admit you were driving under the influence of methamphetamine at the time of this crash, right?
UNIDENTIFIED MALE: In my system (ph), yes.
JAVERS: Clarey pled guilty to criminally negligent homicide and driving under the influence of intoxicant. He was sentenced to 40 months. In his deposition, Clarey admitted to prior convictions for meth and marijuana.
Who would let a driver with that record behind the wheel of an 80,000-pound truck? This man, Forest Rangeloff.
UNIDENTIFIED MALE: Range Transportation did have some safety concerns?
UNIDENTIFIED MALE: Problems, yes. Could never pass.
JAVERS: Liezerman says Rangeloff’s company was nothing more than a chameleon carrier, a trucking company that shuts down and re-files with the Department of Transportation under a new name to avoid liability or government fine. Forest company Range Transportation had a conditional safety rating from the government. That’s a warning to companies that they need to improve.
Even after the Linhart crash, though, he was able to file for a new company that he called Ranget Express (NYSE:EXPR) (ph).
LIEZERMAN: I see too often in this case and other cases that I handle, where the owner of the company simply closes down, refuses to pay fines and starts another company.
JAVERS: Forest Rangeloff said Clarey passed a drug test and told him before the accident that he didn’t use drugs.
LIEZERMAN: There are legitimate reasons to have separate companies, absolutely. But when we’re talking about a chameleon carrier, we’re talking about a truck company that is so unsafe, the government fines it. Instead of paying the fine, the owners close it down and start another company.
JAVERS: Forest Rangeloff isn’t alone. In just one year in 2010, the Government Accountability Office found over 1,100 new trucking company applications that appeared to be changing their name to clear their troubled records. And GAO found 18 percent of suspected chameleons were involved in severe crashes, triple the rate for non-chameleon carriers.
Anne Ferro (NYSE:FOE) is the outgoing head of the Federal Motor Carrier Safety Administration. GAO found in 2010 that her agency only checked 2 percent of new applicants for being potential chameleons. Now, the GAO and Ferro (NYSE:FOE) say more is being done.
ANNE FERRO, FMCSA: What we have done is created a system we call vetting. Are there patterns in this company’s operation that show that they actually are sharing address with the company we shut down before?
JAVERS (on camera): So, what’s the penalty for a chameleon company?
FERRO: Well, there are a series of different penalties, though the highest penalty is we shut them down. We say very clearly, you are not authorized to operate.
JAVERS (voice-over): As for the Linhart family, they were able to arrange a confidential settlement with the company that hired Forest Rangeloff in the first place. Forest Rangeloff was dropped from the lawsuit.
For NIGHTLY BUSINESS REPORT, I’m Eamon Javers.
MATHISEN: If you’d like to read more about Eamon’s investigation into the trucking industry, head to our Web site, NBR.com.
HERERA: Still ahead: when unapproved drugs are the last hope for very ill patients. We’ll bring you the first of our three-part series, “Desperate Measures”, next.
MATHISEN: Tonight, we bring you the first in a three-part series, “Desperate Measures”, about the challenges patients and their families face when treatment options run out and the only thing left to try is experimental drugs.
We begin tonight with the stories of patients who appeal to drug makers for so-called compassionate use of their drugs.
Meg Tirrell has the story.
MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: Nathalie Traller is determined to succeed, whether on the soccer field or training her dog, Missy.
NATHALIE TRALLER, CANCER PATIENT: Good girl.
TIRRELL: Now, she’s tackling the challenge of her life. Two years ago, Nathalie was diagnosed with a rare form of cancer, alveolar soft part sarcoma.
NATHALIE TRALLER: I started getting these really bad headaches and they were a lot worse than normal, and so my mom took me to the doctor one day and they were doing some x-rays and stuff, and eventually found that I had a large tumor in my chest.
TIRRELL: The cancer had already spread to Nathalie’s brain. Since then, she’s been through 10 surgeries, radiation and multiple medicines, some with difficult side effects.
NATHALIE TRALLER: None of them really seem to have a good effect on my cancer.
TIRRELL: Nathalie’s doctors at Oregon Health and Science University’s Knight Cancer Institute have identified a new class of drugs they think may work for her, immunotherapies. They harness the immune system to fight cancer, but they are not yet approved and Nathalie doesn’t qualify for ongoing clinical trials. She’s three years too young.
NATHAN TRALLER, FATHER OF CANCER PATIENT: We hoped there could be an age exception made or some sort of provision so that she could try, you know, some medicines, best ideas, we just kept finding that that door was closed.
TIRRELL: The Trallers are in a position countless others have been before, they are out of options among approved drugs or those available through clinical trials, and Nathalie is running out of time. So they turn to compassionate use, a system designed to act as a last resort.
DR. BRIAN DRUKER, KNIGHT CANCER INSTITUTE DIRECTOR: Compassion use is a way for people to get access to promising new therapies outside the context of a clinical trial.
TIRRELL: Brian Druker, director of OHSU’s Knight Cancer Institute, has adopted Nathalie’s cause.
DRUKER: With promising new therapies, we may exclude somebody for sometimes a relatively trivial reason. In Nathalie’s case, it’s her age. And if we understand that she has the right characteristics where I think she might respond, we might want to provide access to her for that medication.
TIRRELL: Patients applying for compassionate use need the support of their physician, a OK from the FDA, and a drug maker willing to supply the medicine. That’s where Nathalie and many other have gotten stuck. The Trallers and their doctors have asked Genentech, Bristol-Myers and Merck (NYSE:MRK) for access to their immunotherapies. They’ve all said no.
(on camera): The companies say a number of issues play into their decisions, including having enough supply of the experimental medicines for clinical trials, and how thoroughly the drugs have been tested.
(voice-over): But pressure is mounting on drug makers, not just for Nathalie but for many other patients and their families that turn to social media with their pleas, but it’s a complicated issue.
ART CAPLAN, NYU BIOETHICIST: Two or three out of hundreds have seen any benefit. Sometimes people say to me, but what’s the difference, if you’re dying, why not take the shot? New drugs can kill you faster. New drugs can make your sicker.
TIRRELL: Nathalie’s dad says they understand the risks.
NATHAN TRALLER: What we know for sure is we know exactly what Nathalie’s disease does when it’s unchecked, and it’s excruciating pain, it’s things that limit her, and with some of these new medicines, actually, the risk is less than other medicines in the past.
MATHISEN: And Meg Tirrell is with us now.
Meg, these raise important ethical questions, business questions. What are the limits of compassion use? When does it make sense? When does it not?
TIRRELL: Right. Talking with the FDA and talking with Dr. Druker, who we just featured in the package, they really say, you do need the support of your physician to try to interact with the drug makers, and there needs to be a scientific rational behind asking for a specific drug. You know, it can’t be a shot in the dark. There has to be some reason to think it might work.
In Nathalie Traller’s case, she did test positive for a bio marker for these immunotherapy drugs. So, they think there is a good scientific reason and also, there has to be reason that the potential benefit outweighs the potential risk.
HERERA: Risk, yes.
TIRRELL: So, it’s a tough situation.
HERERA: Now, the three companies that said no, what are the odds? Do they ever change their mind? Can you — you know, re-apply or appeal to them again?
TIRRELL: Well, the family certainly has been continuing to try to do that and talking to them all the time. It’s rare that we’ve seen it happen but there was a case, Josh Hardy was a seven-year-old boy, he’s an eight-year-old boy now was asking for an experimental antiviral drug from a company named Chimerix, made a really strong social media campaign. And that’s another element to the story. Patients are getting a stronger voice through social media.
HERERA: Social pressure on the companies.
TIRRELL: Yes, and that turned over, that helped Chimerix reached an agreement with the FDA to start a new clinical trial. They enrolled Josh as the first patient. But as you mentioned earlier, there are ethical considerations here. There are a lot of other patients who’d asked for that drug and they didn’t get it before. So, there are questions of inequity in the system.
MATHISEN: You mentioned some of the reasons why a company might say. In other words, that they don’t have enough supply to supply to the clinical trial. Do the company — what are some of the other reasons and do the companies have to tell you why they rejected your request?
TIRRELL: There aren’t a lot of guidelines over how you communicate about this. And that’s one of the issues in the system, people tell me. But the other reasons they say no, it’s really all about getting drugs to market for the broadest population of patients, as fast as possible and the companies say you have to do that through clinical trials and we take a much closer look at this in our next package on this, which runs tomorrow night.
MATHISEN: Yes, what do you have tomorrow night? Remind us.
TIRRELL: It’s a look at why the companies say no. So, we talked to a lot of companies about how they make the decisions, and these are real people, the drug companies, and they are making heart-wrenching decisions about this.
HERERA: Yes, we don’t — I would not envy them being in that position and having to say no to a beautiful young girl like that. On the other hand, there are mortality issues if she takes the drug and something happens and that leads to liability issues, as well.
TIRRELL: That’s absolutely right.
HERERA: Meg, we look forward to chapter two tomorrow.
TIRRELL: Thank you.
HERERA: Meg Tirrell.
And to read more about Meg’s “Desperate Measures” series for us, you can go to our Web site, NBR.com.
And that will do it for us tonight on NIGHTLY BUSINESS REPORT. I’m Sue Herera, in for Susie. Thanks for joining us.
MATHISEN: And I’m Tyler Mathisen. Thanks from me, as well. 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 http://nbr.com. 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.