SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Batteries included.
Warren Buffett is charging ahead with a multibillion dollar deal to buy Procter & Gamble`s Duracell brand. But what`s really behind the Oracle`s offer?
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Shrek, meet my little pony. Movies based on toys, toys that come from movies. That`s evidently what`s behind reported deal talks between Hasbro (NYSE:HAS) and DreamWorks Animation. But does a merger make sense?
HERERA: Crude deal. Halliburton (NYSE:HAL) is reportedly in talks to buy Baker Hughes (NYSE:BHI), and would come at a time when the oil industry is dealing with sharp price decline.
All that and more tonight on NIGHTLY BUSINESS REPORT for Thursday, November 13.
Good evening, everybody. I`m Sue Herera. Susie Gharib is off tonight.
MATHISEN: Welcome, everybody.
Nice to have you here, Sue.
A day of deals — one confirmed, two in the discussion stage, and all helping to push the Dow to a fresh all-time closing high, its 25th of the year.
First, the possibles — deal one will see the toymaker Hasbro
(NYSE:HAS) buy the film studio DreamWorks Animation. Deal two in the possibles category with combined Halliburton (NYSE:HAL) and Baker Hughes (NYSE:BHI), two of the world`s largest oil services company. More on both of those in a moment.
But the done deal expected to formally close next year finds Warren Buffett charging up his Berkshire Hathaway (NYSE:BRK.A) holding company by acquiring Duracell batteries from Procter & Gamble (NYSE:PG). Now, P&G got the batteries when it bought Gillette, then a big Buffett holding back in 2005. It`s a complicated deal in which Buffett gets Duracell and minimizes taxes by handing over $4.7 million P&G shares Berkshire now owns.
So, how did investors see things? Procter & Gamble (NYSE:PG) shares off 1 percent, Berkshire ending a half percent higher.
Sara Eisen now with more on the buyout, including what it means for Berkshire and why Procter & Gamble (NYSE:PG) is letting Duracell go.
SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): If you heard him say it once —
WARREN BUFFETT, BERKSHIRE HATHAWAY CHAIRMAN & CEO: You want to invest in things you know.
EISEN: You`ve heard him say it a thousand times.
BUFFETT: A good business is one that earns a high rate of return on tangible assets.
EISEN: Warren Buffett likes to invest in big consumer names like Fruit of the Loom, GEICO and Heinz. When he thinks the price is right, he will pounce. In announcing the deal, Buffett said, quote, “I`ve always been impressed by Duracell as a consumer and as a longterm investor in Procter & Gamble (NYSE:PG) and Gillette. Duracell is a leading global brand with top quality products, and it will fit well within Berkshire Hathaway (NYSE:BRK.A).
When it comes to batteries, Duracell is still the market leader, ahead of Energizer. And even if sales volume are down overall, analysts think there is still a charge to be had in batteries, especially in a deal where Berkshire Hathaway (NYSE:BRK.A) used its stash of Procter & Gamble
(NYSE:PG) stock to pay for the purchase, not cash. In fact, the only cash comes from Procter & Gamble (NYSE:PG), which is putting $2 billion back into Duracell Berkshire takes over.
CATHY SEIFERT, S&P CAPITAL IQ: I think the way the deal is structured is very interesting on a number of levels, not the least of which is the opportunity for Berkshire to shed its holding in P&G without paying the traditional capital gains tax. This is a very typical Warren Buffett Berkshire move and that is to buy — you know, it`s a deep value play.
EISEN: Duracell came to Procter and Gamble back in 2005 when it bought Gillette. At the time, Buffett was Gillette`s biggest holder. But now, Procter and Gamble is turning the scope of its business, refocusing on core brands like Pampers Diapers and Tide Detergent.
(on camera): Berkshire and Buffett may find Duracell cash flow attractive, but they are likely to find a challenge when it comes to growing the actual business, in a world where smartphones and tablets dominate and with that, high packed rechargeable batteries.
For NIGHTLY BUSINESS REPORT, I`m Sara Eisen.
HERERA: And now to the other deal that has Wall Street buzzing.
Advance talks between toy giant Hasbro (NYSE:HAS) and the film studio DreamWorks Animation. Investors seem to like the idea of “Shrek” teaming up with my little pony. DreamWorks shares looked like a big box office hit, up 14 percent. While Hasbro (NYSE:HAS) shares actually declined more than 4 percent.
Julia Boorstin takes a look at the proposed deal and what the two companies stand to gain or loss.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: While DreamWorks Animations makes movies and Hasbro (NYSE:HAS) toys, they`re both creating brands and trying to cash in across platforms.
STEPHANIE WISSINK: From a margin perspective, DreamWorks business is a lower margin profile. From a content evolution and what we`re seeing in the industry, this will provide them the capabilities to be more competitive.
BOORSTIN: To diversify away from the risky movie business and rely on some of the films a year, CEO Jeffrey Katzenberg has made deals to bring hit brand “Shrek” and “How to Train Your Dragon” into new businesses.
Katzenberg struck a big content deal with Netflix (NASDAQ:NFLX). He`s expanding to digital content by buying YouTube network off TV, and he`s teamed up with Chinese government to build a theme park and movie studio.
Meanwhile, Hasbro (NYSE:HAS) is already a force in entertainment. Its movies including Paramount`s hit “Transformers” and “G.I. Joe” franchises have grossed $3.7 billion worldwide. But its “Battleship” film bombed in
2012 and in September, it sold part of its TV joint venture to Discovery after that channel failed to compete.
While Hasbro (NYSE:HAS) could benefit from more movie revenue and the power of films to revive toy brands, analyst Eric Handler is skeptical about this deal.
ERIC HANDLER, MKM PARTNERS ANALYST: Getting involved in the feature film business is a risky endeavor and I don`t see being a good value for Hasbro (NYSE:HAS) and its shareholders.
BOORSTIN: Another risk, Hasbro (NYSE:HAS) has a valuable licensing deal with Disney (NYSE:DIS), to make Marvel and Star Wars toys and its Princess franchise starting in 2016.
Disney (NYSE:DIS) may not want its toy makers to back movies from its competition. We`ll see if the two companies can tackle that issue and agree to a price.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.
MATHISEN: More now on that possible take over in the oil services industry. News broke late today Halliburton (NYSE:HAL) apparently in advanced and past moving talks to buy rival Baker Hughes (NYSE:BHI). Dow Jones reported the talks right before the closing bell, helping shares of Baker Hughes (NYSE:BHI) shoot up 15 percent today. Halliburton (NYSE:HAL) up 1 percent.
Dominic Chu joins us now with the latest on the talks of combining two of the top three players in the business.
How much do we know about this deal?
DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: We don`t know a lot, but Dow Jones reports don`t even put a price tag yet on what`s happening with this particular deal. But what it comes down to is, this is an energy sector and specifically oil services as an industry group that`s been beat up tremendously since oil hit their recent highs back in the mid- summer. We`ll call it about June.
So, if you take a look at why these deals are happening, maybe some of these companies have gotten so depress, guys, that they are becoming attracted takeover candidates to other bigger players. If these guys do combine, it would be a big, big company.
Schlumberger (NYSE:SLB) is currently the world`s biggest. Last year, it made about $45 billion in annual revenues.
CHU: If you combine both Halliburton (NYSE:HAL), it made $29 million last year, $22 billion in sales for Baker Hughes (NYSE:BHI). That would put it presumably at around that $51 billion mark if all things were held constant.
So, this is a big deal for a lot of players in the business.
HERERA: But it comes at a time when we`re seeing oil move sharply lower. I mean, it`s lost quite a bit in terms of percentage terms this year alone. What are implications of that on the deal, Dom?
CHU: You know, what happens right now, as some people say, this could mark a bottom perhaps in crude oil prices, if you start to see major players consolidate in this particular business.
MATHISEN: Any antitrust worries here?
CHU: There could be, but Schlumberger (NYSE:SLB) is already a much bigger company in terms of its market cap. It could be that you will have two or three major, major players. What`s going to be interesting is other smaller players consolidate on the heels of this deal, if it were to happen.
MATHISEN: Could trigger that. Dominic, thank you very much. Dominic Chu reporting.
HERERA: All right. Well, today`s burst of those corporate deals, combined with some solid earnings reports sent the market higher, despite that slump in oil prices.
Here`s how things looks at the close. The Dow was up 40 points, and ending at a new closing high. The NASDAQ was up 5, and the S&P added 1.
MATHISEN: And, Sue, the Dow got a big dose of help today from Walmart. Share shot up near 5 percent, by far, the biggest gainer in the index, following some encouraging news in its latest earnings report.
Courtney Reagan has more.
COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
The third quarter was stronger than expected for the world`s largest retailer, though Walmart remains cautious about the all-important holiday quarter.
For the first time in seven quarters, Walmart grew sales at U.S.
stores, opened at least a year, albeit just by one half of a percent. In store traffic, however, fell for the eighth straight quarter.
Walmart U.S. CEO Greg Foran says the traffic trend is improving, adding that company suspects it`s probably the benefit of lower gas prices.
Though according to chief finance office Charles Holley, it`s hard to know how big the benefit really is.
While the National Retail Confederation and other retail consultancy groups are forecasting a relatively robust holiday sales season, Walmart joins the chorus of several other retailers that aren`t quite as confident.
On a media call, Foran says he feels, quote, “cautiously optimistic about the holiday season”, as Walmart forecasts lower earnings for the quarter than what analysts are expecting, as the retailer points to a highly promotional and highly competitive holiday season.
DANA TELSEY, TAG: If you don`t give the best deals, consumers just won`t budge. Categories also, they are buying other categories, whether it`s consumer electronics, going to restaurants, there`s a greater share for the consumer`s dollar and greater demand for the consumer`s dollar than just apparel and accessories. It`s almost like a day to day events of what`s happening in order to grab attention.
REAGAN: In fact, on Wednesday, Walmart joined competitors, Target (NYSE:TGT), Best Buy (NYSE:BBY), and others, by announcing it will offer door buster before, after, and during Black Friday, trying to stagger deals over a stretch of days to incentivize consumers to shop and then come back and shop some more.
For NIGHTLY BUSINESS REPORT, Courtney Reagan.
HERERA: Another big retailer posting better than expected earnings after the bell was Nordstrom (NYSE:JWN), beating on the top and bottom lines, thanks to a jump in sales last quarter. Shares were initially higher in afterhours trading, even though the company did trimmed its full year earnings outlook.
MATHISEN: Well, you may hear this one before — oil prices falling again today. Now a new four-year low, right around $74 a barrel. Domestic crude tumbled nearly 4 percent to hit that roughly 74 buck level. Lower oil prices are welcome news, of course, for the airlines since fuel is the industry`s biggest expense. United Continental, Delta, JetBlue, Southwest, all higher today.
HERERA: The steady rise in airline stocks and steady decline in the price of oil are some of the reasons why the Dow Transport index is near record with more people hitting the roads, the rails, and taking to the skies.
Morgan Brennan has more.
MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
It`s been a good month for the Dow Jones transportation average. After tumbling nearly 10 percent, the transports have rallied 18 percent since mid-October. Airlines like Delta Southwest and United Continental had been top performers, after tumbling on Ebola fears. But the rally is much more widespread. Every one of the 20 Dow Transport components has jumped in the past month, all but one by double digits.
JACK BOURDUOJIAN: One of the reasons the transports have rallied so strongly because they got beat up so bad. And if you think about it, you know, we have got a huge energy revolution taking place right in the heart of the country and the transports are right in the heart of that energy revolution. So, what we have seen is basically just a snap back.
BRENNAN: Energy is having another effect as well, whether its railroad or truckers or shippers, fuel is a top cost. As oil falls, cheaper prices will boost profits, particularly in the short-term, before companies reset their fuel surcharges.
More importantly, cheaper gasoline means consumer spending more on goods, goods that will need to be moved.
Volumes have been growing across all modes of transports and analysts expect that to continue, helping all the players including freight rails like Union Pacific (NYSE:UNP) and CSX (NYSE:CSX), and truckers like Ryder and J.B. Hunt.
Still at current prices some experts think the recent rally has made these stocks expensive.
JEFF KILBURG, KKM FINANCIAL CEO: We think transports could be over bought due to emotion in the market. We see U.S. stocks prevailing from the global perspective. But to see people file in the way we have in the last couple of weeks and see those type of gains, those aren`t sustainable.
BRENNAN: But as peak shipping season gets underway, these companies will continue to be a focus. UPS and FedEx (NYSE:FDX), for example, are prepping for another record holiday, making sure they don`t miss delivery deadlines.
(on camera): And as the U.S. economy continues to recover, the transports in general stand to keep benefiting, even if oil begins to recover.
For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.
MATHISEN: Still ahead, from the Keystone pipeline to immigration, how the coming bat the battles in Washington may play out now that new leadership has been voted in.
HERERA: Some mixed news on the jobs front. First time jobless claims rose by 12,000 last week, a bit more than expected, but the number of claims is still near 14-year lows. Also out, the Labor Department`s latest survey on job openings and labor turnover, which shows more than 5 million Americans were hired in September, the most in one month since December of 2007, and that more Americans quit their jobs that month. They`re apparently confident that they`ll be able to get a new one.
MATHISEN: Uncle Sam kicked off the budget year on the wrong foot.
The nation`s budget deficit ballooned to $122 billion in October. That`s up 34 percent from the same month a year ago. Part of the season for the increase is that November 1st fell on a Saturday and $41 billion in federal payments designated for the new month were sent out a few days early during the month of October.
HERERA: A changing of the guard in Washington. In a closed door session, Kentucky Republican Mitch McConnell was unanimously voted in as the Senate majority leader-elect. Today, McConnell had some tough words for the president in the wake of last week`s Republican rout in the midterm elections.
(BEGIN VIDEO CLIP)
SEN. MITCH MCCONNELL (R-KY), SENATE MAJORITY LEADER-ELECT: I`ve been very disturbed about the way the president has proceeded in the wake of the election, whether it was his intervention on net neutrality, his apparent decision to move ahead on immigration with executive orders, the rather ridiculous agreement with the Chinese.
Let me tell who did get the message, and that was Senate Democrats. I think they got the message on the Keystone Pipeline, and I think that`s why you`ve seen the current Democrat majority in the Senate have an epiphany and they decided to allow a vote they`ve been blocking.
(END VIDEO CLIP)
MATHISEN: And just today, the Republican-led House debated a bill that would have approved more construction along the delayed Keystone Pipeline.
Eamon Javers joins us now from Washington with more on the Keystone controversy, and what else is on the sort of agenda for the president and the lawmakers as we go into the lame duck.
So, Eamon, where does the issue go from here? The House is apparently going to have a vote, and next week, the Senate is going to have a vote.
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes, that`s right, Tyler. And it won`t surprise you to learn that there`s politics involved in all of this. Behind the scenes, what`s at stake here is a Louisiana Senate seat. Senator Mary Landrieu is going into a runoff with her Republican opponent, who`s a member of the House of Representatives.
And so, what Landrieu is hoping to do, because the Keystone pipeline is so popular in her state is push that through in the Senate side. She`s been on the floor today and yesterday trying to get that vote done. She got an agreement for it to happen on Tuesday.
She`s a Democrat though, and a lot of Democrats seemed to walk away from their opposition to Keystone in order to give Mary Landrieu a legislative victory that she can tout going in to that December runoff.
So, politics here at play. The House trying to jump ahead of Mary Landrieu with her Republican opponent announcing a bill and hopefully from their perspective getting the political credit down in Louisiana for it.
MATHISEN: So, let me ask you a follow up on the Keystone thing. This is all balled up not only in politics, but if the Congress goes ahead and votes approval, which many people think it will do, does that mean that the president, A, veto the bill, will he have to go along with it, it`s tied up in that kind of struggle, and also, in struggles in Nebraska courts?
JAVERS: Yes, that`s right. I mean, the court issue is one complication and then, the big decision will be whether or not this pipeline which environmentalists in his political base strongly, strongly oppose, is worth signing into law if, A, it helps Mary Landrieu in her Senate race and helps Democrats keep one more Senate seat that could otherwise go the other way, and, B, it gives the president the opportunity say, look, I heard the results of the election and I`m willing to compromise on things that Republicans want and so, let`s get started on a bipartisan bill?
This will certainly be a bipartisan vote, although heavily Republican supported when it gets to the president`s desk.
MATHISEN: Very quick on the China deal that was announced earlier this week regarding CO2 emissions, carbon emissions. Is Congress likely to try and undo that, block it, slow it, what?
JAVERS: Yes, Mitch McConnell is going to look for anything he can do to stop what he calls the president`s war on coal. Remember, McConnell represents the state of Kentucky, coal is huge there and this is very important to Mitch McConnell`s base back home.
MATHISEN: All right. Eamon, thanks very much. Eamon Javers reporting tonight from Washington.
HERERA: Box office hits help Viacom (NYSE:VIA) rack up revenue, and that`s where we begin tonight`s “Market Focus”.
The media giant`s “Transformers” and “Teenage Mutant Ninja Turtles”
movies sent its sales higher. Also, an increase in the affiliate rates that it charges cable and satellite TV providers helped results. That made up for weak TV ratings, which hurt its advertising revenue. Shares were almost 3 percent higher, closing at $71.20.
A not so sunny outlook weighed on shares of Sun Power today. The second largest market of solar panels in the U.S forecast a much lower than expected 2015 profit. And this follows light guidance from its rival Canadian Solar (NASDAQ:CSIQ). Shares were off more than $1 to $28.08.
BlackBerry is hoping to woo business uses with new software. The smartphone maker unveiled its new mobile device management platform and struck new partnerships, one with Samsung, aimed at bolstering its security and management business. That lifted shares more than 7 percent to $12.06.
Shares of Twitter took a dive after the company`s debt received a “junk” rating from credit agency S&P. The agency says the social media company has a fair risk profile and it holds a stable outlook on the firm.
The stock, though, $2.50 to $40.04.
And, Amazon (NASDAQ:AMZN) and Hachette have buried the hatchet. The months-long stand-off between the online retailer and the publisher is finally over after the two companies cut a multi-year deal on e-book and print book sales. The feud was mainly over e-book pricing, under the new terms Hachette will set consumer prices, but stands to get a bigger cut the more it discounts. The deal goes into effect in 2015. Shares of Amazon
(NASDAQ:AMZN) up more than 1 1/2 percent to $316.48.
UPS shares fell after the delivery company forecast 2015 earnings below expectations. The CEO also told investors that it`s going to return
$30 billion to shareholders over the next five years. Still, shares were down slightly to $107.79.
HERERA: And coming up, what to do when your startup is too small for regular office space and too big for a home office? How the sharing economy is helping to solve a common problem faced by entrepreneurs.
MATHISEN: Federal grand jury has indicted the former CEO of Massey Energy (NYSE:MEE) on charges he violated federal mine safety laws before the 2010 explosion at the company`s West Virginia mine. Other charges include making false statements to the SEC and securities fraud.
HERERA: Some mixed news on the national student debt crisis. The Institute for College access and success reports that the average loan debt for college graduates is now more than $28,000 nationwide. That is up 3 percent from last year, to a total of $1.2 trillion. The study also shows that although college costs are increasing at a higher overall rate than inflation, some schools are starting to hold the line on hiking tuition.
MATHISEN: A new wave of start ups and entrepreneurs in the so-called sharing economy are no longer working out of garages or coffee shops.
Instead the new trend is renting shared office space, which companies like Airbnb, Reddit and BuzzFeed have done.
Sharon Epperson has more.
SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
What`s all the ruckus about?
Ask entrepreneur Manick Bhan who launched this app that offers tickets to various events at a discount. His journey to becoming a start up CEO began in his New York City apartment.
MANICK BHAN, ENTREPRENUER: We did that in the beginning and we try to do that as far as we could to kind of conserve capital and we kind of maybe hired two or three people, and it wasn`t working anymore to fit everyone in a small face like an apartment.
EPPERSON: He tried running his business out of slightly larger venues.
BHAN: At one point, we worked out of a coffee shop for a week.
That`s interesting. Difficult to leave your computer like at a seat and run to the restroom, someone`s got to watch it. So, there`s a lot of like logistic problems.
EPPERSON: Too big for a home office, too small to rent office space on his own.
Like many startups, Bhan`s company was facing initial growing pains, expanding fast but constrained by physical workspace and a need to keep overhead low.
(on camera): More freelancers and entrepreneurs are opting to set up shop in co-working spaces, where they can rent a cubicle, an office, or suite, month to month and get access to office resources.
ANDY SMITH, THE YARD EXECUTIVE DIRECTOR: It`s still a relatively new concept that you can run your own business from a laptop with a Wi-Fi connection. You know, there`s only so far you can take that if you`re working in your garage or in your couch.
EPPERSON (voice-over): Co-working spaces like New York City`s The Yard, or WeWork now in six cities and London, offer amenities at a relatively low cost, a reception, a conference room, kitchen, lounge area, free Wi-Fi, coffee, tea, and at We Work, even beer on tap. Rental terms are flexible too. Entrepreneurs can upgrade their space as their company expands, like Rukkus did.
ADAM NEUMANN, WEWORK CO-FOUNDER & CEO: That`s a company that in one year went from an idea, to having seven employees, to having real cash flow. And I think if I`m not mistaken, they expectancy next year is to go north of 10 or maybe even 15 employees.
EPPERSON (on camera): For many entrepreneurs, one of the most coveted amenities of shared spaces is sharing information and ideas, in the hallways, lounges or by connecting virtually.
NEUMANN: If they`re searching for a member, they can find anybody they want. If they`re searching for a company, if they want a specific business.
EPPERSON: WeWork connects thousands of its members and updating entrepreneur`s about new offerings like Group Health Insurance.
BAHN: It basically takes a lot of logistical challenges you might face as a start up out of the equation and just let you focus on doing your business.
EPPERSON: The best part of working in a shared space, Bahn said, is the community.
BAHN: There`s no book that tells you how to build a tech startup.
EPPERSON: But being around others who were doing the same help.
For NIGHTLY BUSINESS REPORT, I`m Sharon Epperson.
HERERA: And finally tonight, “Fortune” magazine out with its annual list of the top people in business. Coming in third place, John Martin, CEO of drugmaker Gilead Sciences (NASDAQ:GILD). At number two, Apple
(NASDAQ:AAPL) CEO Tim Cook for all of those must-have products. In first place, Google (NASDAQ:GOOG) cofounder and CEO, Larry Page, called the world`s most ambitious chief executive for spearheading things like driverless cars and space flights.
Remember when Google (NASDAQ:GOOG) was basically just search the Internet and YouTube videos?
MATHISEN: Not anymore.
HERERA: Not any more.
MATHSEN: They run my phone. They sort of run my life.
HERERA: Yes, that`s scary.
All right. That does it for NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera, in for Susie.
MATHISEN: And I`m Tyler Mathisen. Thanks for joining us. 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.