Transcript: Nightly Business Report — May 18, 2015

NBR-ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Wedding season on Wall Street. From generic drugs to women`s apparel, companies are walking down the aisle ringing up billions of dollars in deals.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Big surprise. From retail to housing to inflation, are investors in for something unexpected on this heavy data week?

GRIFFETH: High cost funds. A Supreme Court decision gave you a reason to take a closer look at your 401(k).

All that and more tonight on NIGHTLY BUSINESS REPORT for this Monday, May 18th.

Good evening, everybody. I`m Bill Griffeth, in tonight for Tyler Mathisen.

HERERA: Nice to have you here.

GRIFFETH: Thank you.

HERERA: I`m Sue Herera.

Ten billion dollars worth of deals, that`s what was rung up on Wall Street today. Two major retail names are getting together.

But it was drug maker Endo that ended up being the biggest acquirer, with an agreement to buy Par Pharmaceuticals for $8 billion from buyout firm TPG. The deal will make Endo International an even bigger player in the fast changing and fast consolidating generic drug sector. By the close, shares of Endo fell more than 5 percent.

Bertha Coombs has more on the deal and what it could mean for the price of generic drugs.


Generic drugs save patients money, but drug makers that produce them are attracting big bucks. Endo International paying $8 billion for Par Pharmaceuticals.

RAJIV DE SILVA, ENDO PRESIDENT AND CEO: This is a transaction that transformative for Endo in general, but specifically in generics. This will position us as a top five generics player in the U.S.

COOMBS: Endo`s shares fell, some analysts citing costs. Par Pharma was taken private for just $2 billion in 2012.

But there`s big competition for generic pharma deals. Pfizer
(NYSE:PFE) recently bought generic makers Hospira (NYSE:HSP) for $16 billion. While generic giant Teva has bid $40 billion for Mylan (NASDAQ:MYL), which in turned is bidding more than $30 billion for Perrigo (NASDAQ:PRGO).

PAUL HOWARD, MANHATTAN INSTITUTE SENIOR FELLOW: Interests are low, so that`s encouraging companies to reach out and do M&A. It`s a nice environment to do M&A when it`s that cheap to do so.

So, companies are looking around, looking to fill their pipelines of products.

COOMBS: While new specialty drugs can command high prices, some generic drug prices have skyrocketed. Government data show prices for generic cholesterol drug Pravastatin and generic antibiotic Doxycycline more than doubled the last year.

LES FUNTLEYDER, E SQUARED ASSET MANAGEMENT: Part of it is consolidation, part of it is also the supply chain. You probably read that there are a number of plants down because of irregularities in manufacturing.

The implication is: fewer manufacturer`s means higher prices. And I think that you`re seeing it in the generics.

COOMBS (on camera): With some of the backlog in manufacturing easing, analysts say generic drug prices increases have slowed this year.
But they expect the rate of drug deals in the $74 billion generic drug market to continue at a fast pace.



GRIFFETH: And Intel (NASDAQ:INTC) and Altera (NASDAQ:ALTR) have reportedly resumed their on again/off again merger talks. Earlier discussions fell through because the companies were unable to agree on a price, but reports now say a deal between the two chipmakers could top $13 billion. Shares of Altera (NASDAQ:ALTR) climbed more than 5 1/2 percent of that talk. While Dow component Intel (NASDAQ:INTC) rose by 1 percent.

HERERA: More now on that retail we mentioned earlier in our program.
Women`s apparel retailer Ascena says it will buy Ann Inc. Ascena which run brands like Dress Barn and Lane Bryant will pay more than $2 billion for the company that owns Ann Taylor and Ann Taylor Loft. Loft will become Ascena`s largest brand, accounting for 22 percent of the combined company`s value and revenue.

The deal is expected to close in the second half of this year.
Shares of Ann Inc. soared nearly 20 percent, while Ascena fell about 1 percent.

GRIFFETH: And that retail deal kicks off a big week of earnings in that sector. Tomorrow will reportedly get results, quarterly results from both Home Depot (NYSE:HD) and Walmart. And some of the world`s most recognizable stores are facing big obstacles right now.

Courtney Reagan has more.


While the majority of companies have already reported first quarter earnings, retailers are just ramping up. Wall Street is hoping the consumer will lift the broader economy, particularly after a number of disappointing reports. Including April retail sales and estimates for first quarter GDP.

But there are a number of issues that could hurt retail earnings and forecasts. Retail`s first quarter is typically February through April, which means harsher than likely weather likely played a part, as well as the West Coast port congestion that`s still proving an overhung for a number of companies.

While the impact of a strong dollar will likely be most evident in retailers selling goods internationally, it could also impact retailers with mostly domestic operations in a number of ways.

Macy`s (NYSE:M) one of the first to report and largely considered best in class, said sales in large cities took a hit from lower tourist spending. The department stores results disappointed, thanks to both companies specific and other external factors.

(on camera): While gas prices remain lower than last year`s levels, consumers aren`t plowing savings at the pump, back into traditional retail spending. Instead, consumers are paying down debt or building up savings.
But a number of analysts expect retailers to forecast spending will improve in the second half of the year.

PETER KEITH, PIPER JAFFRAY SR. RESEARCH ANALYST: Looking out to the rest of the year, we do think there`s more tailwinds than headwinds. So, it`s going to be choppy month to month, but broadly speaking, we think we`re going to see a favorable consumer spending environment through the balance of the year.

REAGAN (voice-over): Some of the tailwinds analysts are counting on, an improving labor market and wage growth. Tomorrow, Wall Street will hear from Walmart, Home Depot (NYSE:HD), TJX and Dick`s Sporting good. You`ll expect big surprises from Wall Street`s earnings, it`s hard to turn the tide on the world`s largest retailer in just one quarter.

But as always, U.S. same stores sales is the key metric to watch. On Wednesday, Lowe`s, Target (NYSE:TGT), Williams-Sonoma (NYSE:WSM) and American Eagle report. Thursday, Wall Street gets results from best buy, L Brands, Gap (NYSE:GPS), Dollar Tree (NASDAQ:DLTR) and a number of others.
Friday rounds out the week with Foot Locker`s first quarter earnings reports.

When it comes to shopping for stocks, analysts warn it`s buyer beware in a traditionally fickle retail sector.



HERERA: Earnings from some big retailers just some of the things that investors will be watching this week. We also get the minutes from the last Fed meeting and the details on the health of housing, which started today with the soft read on home builder sentiment.

Michael Hanson joins us. He`s the senior U.S. economist with Bank of America (NYSE:BAC)-Merrill Lynch Global Research.

Thanks so much for coming on.

Thanks for having me.

HERERA: Let`s start with the consumer. Courtney kind of outlined all the different companies coming to market this week with their earnings, what are you expecting? What do you think the consumer did with their cash this last quarter?

HANSON: Well, the consumer has been saving I think more than people anticipated, which is one of the things that was mentioned in the segment.
And I suspect that reflects perhaps some rebuilding of balance sheets, although they`re in much better shape. We`ve seen the deleveraging process largely run its course. As was mentioned, the labor market, wages are looking a bit better.

But I think one of the big questions is whether consumers will spend the boom purchasing power from the drop of oil prices. So far, they really haven`t. That may be because they`re waiting to see if that`s more persistent or if it may be is a temporary drop in oil prices.

So, if it lasts longer, and their purchasing power show signs of persisting, you`ll probably see that pickup maybe later this year.

GRIFFETH: Wednesday, we get the minutes from the Fed`s April meeting, we already have a sense of what they were talking about that that time, because we heard from Fed Chair Janet Yellen. But we always pour over those anyway.

Do you think we`ll get any sign, any expectations for when the Fed`s going to start raising rates?

HANSON: I don`t think they`re going to be so explicit, although it`s quite likely that there will be some discussion in the minutes, I suspect that they won`t rule out June categorically. They won`t rule out June, so June probably.

But there may be some indications of what they`re looking at and what factors may potentially lead them to hike later than some people are currently anticipating. So, that`s the thing we want to pay attention.

HERERA: When do you think that they will start to raise rates.

HANSON: Well, we think September would be the earliest we would likely see the Fed go. That`s really the function of the fact that the rhetoric seems to suggest that they have a relatively low threshold to getting started, because they see this, it`s the beginning of a very long process. But if it was purely on the data, you could make an argument that it would be even later, perhaps December, it has appointments.

GRIFFETH: One of the soft spots elsewhere — housing, we`re just not seeing the rebound that you would imagine you get at this time in the cycle. Home builders` sentiment today not very strong.

What`s wrong with housing right now?

HANSON: Well, I think there`s a couple of things. Housing kind of hit an air pocket last year and moved sideways. And we are seeing some signs of picking up. We`re looking for 1 million starts when the April number comes out this week.

But, you`re right, I think people were anticipating it would be more.
I think it`s a combination of some tight credit conditions still, first time home buyers. Household formation rates have still been soft.

So, I think there`s several factors that are kind of still putting a drag on the housing market.

HERERA: Do you see improvement in credit conditions? Because it`s been tight for an awfully long time?

HANSON: Yes, if you think about it, the mortgage market was kind of the epicenter of the crisis. So, it`s the last place the healing will show up we think the housing market over the next couple years will continue to see some signs of recovery.

HERERA: Michael, thank you so much. Good to see you again.

HANSON: Thank you.

HERERA: Michael Hanson with Bank of America (NYSE:BAC) Merrill Lynch Global Research.

GRIFFETH: Gains on Wall Street were modest, but it was enough to put both the S&P 500 and the Dow at new records. By the finish, the industrial average rose by 26, close at 18,298, its fifth record close of this year.
The NASDAQ was up by 30 points. And the S&P 500 notched a six point gain to close at 2,129. That`s its third consecutive records close.

HERERA: And now to Greece, where one European Central Bank official has reportedly warned that the, quote, “end game”, end quote, is near.
Greece needs to reach an agreement with its creditors by the end of the month to stay afloat financially. That country`s prime minister also said a deal must not impose further pension cuts. Greece`s next big debt payment is due in early June.

GRIFFETH: Meantime, China retakes the top spot as the biggest holder of U.S. debt. This as overall foreign Central Hank holdings of U.S.
treasuries fell in March, that according to the Treasury Department. Japan slipped back to number two.

HERERA: Still ahead, the key questions you need to be asking about the funds in your 401(k), following today`s decision by the Supreme Court.


HERERA: Carl Icahn says Apple (NASDAQ:AAPL) is worth $240 a share.
The activist investor sent a letter to Apple`s CEO, Tim Cook, saying the stock remains, quote, “dramatically undervalued”, end quote. Icahn cites Apple`s possible move into two new markets, television and cars, and wants Apple (NASDAQ:AAPL) to issue a much larger buy back. Icahn has been pushing Apple (NASDAQ:AAPL) for a larger buyback since 2013. Apple
(NASDAQ:AAPL) finished the day 1 percent higher to $130.19.

GRIFFETH: Well, apparently, it pays to run a media or a tech company these days. “The New York Times (NYSE:NYT)” has released its Equilar 200 highest paid CEO rankings, the list of the best compensated chief executives at publicly traded U.S. companies with at least $1 billion in market capitalization.

Sharon Epperson takes a look at the top earners in America`s C- suites.


Despite efforts to rein executive compensation, those at the top of the corporate ladder continue to see massive paychecks.

JAMES REDA, ARTHUR J. GALLAGHER MANAGING DIRECTOR: It`s obviously not based on performance, you look at the total share of the return. In some cases, the total share of a return is negative. Other cases, it`s flat, or it`s underperforming the market.

EPPERSON: Though its total shareholder returns slid 24 percent last year, Discovery Communications` David Zaslav topped Equilar`s list of the
200 highest paid CEOs, with $156 million in total compensation, making him the highest paid CEO since Tim Cook of Apple (NASDAQ:AAPL) received $376 million in 2011.

In second place, Michael Fries, head of the international cable company, Liberty Global (NASDAQ:LBTYA). Fries pulled down over $111 million in 2014, a 140 percent increase in pay over the previous year.

Both Zaslav and Fries signed contracts resulting in especially big paydays. But there may be other factors at work.

REDA: I think media executives are the highest paid, because it is a very creative industry. It`s a very personality based industry, the top people of these companies have a lot of relationship, a lot of loyalty internally and externally.

EPPERSON: Number three on the list, Mario Gabelli of GAMCO Investors, the best paid man on Wall Street, with total compensation of more than $88 million. Remarkably, Gabelli doesn`t have an actual salary, his pay is based on incentives related to his company`s growth.

For comparison, Jamie Dimon, head of one of the largest U.S. banks, JPMorgan (NYSE:JPM), earned nearly $28 million, coming in thirty-second on the list.

And tech continues to pay very well, out of the top 10 CEOs, four of the executives are at technology companies. Microsoft (NASDAQ:MSFT) Satya Nadella took the first spot, earning a cool $84 million in salary, cash and the stock bonuses.

And GoPro`s Nicholas Woodman earned more than $77 million.

(on camera): The survey shows that there`s no wage stagnation in the C-suites. Medium pay for the 200 CEOs was about $17.5 million, a growth of
21 percent over last year`s study. The average was more than $22 million.

EPPERSON: Among the top CEOs, the highest paid woman was Marissa Mayer of Yahoo (NASDAQ:YHOO), at $42 million, sitting at fourteenth on the list.

REDA: The Securities and Exchange Commission has just come up with proposed roles that require each company to show performance using total show of the return over the past five years and compare that against CEO pay. So, I think things might be changing.

EPPERSON: Welcome news to average investors.


HERERA: Shares of Urban Outfitters (NASDAQ:URBN) sink on weak results. And that`s where we begin tonight`s “Market Focus”.

Both earnings and revenue came in below the street`s estimates.
Offering discounts and promotions weighed on the retailer`s margins. The stock was down as much at 13 percent in after-hours trading. Before the close the stock was up almost three percent to $40.72.

The bird flu will take a big toll on Sysco (NYSE:SYY). The company, which is the largest U.S. food distributor, says the outbreak will crimp egg and chicken supplies up to 18 months. It`s still too soon to tell if the supply squeeze will impact its financials. The shares were a fraction higher to close at $37.49.

GRIFFETH: Tesoro has ordered new crude oil rail cars with features that surpass the safety standards regulators recently set. The new rules are aimed at curbing accidents, following a series of oil train explosions in the U.S. and Canada. Shares of Tesoro rose 1.5 percent to $92.79.

ConocoPhillips (NYSE:COP) now expects to maintain its current capital expenditure levels for another three years. Earlier this year, the energy producer joined other oil majors in cutting spending in the wake of declining oil prices. Shares were a fraction higher to $66.04.

Consumer Reports` review of Telsa`s top of the line Model S, let`s just say it was less than spectacular. In fact, the magazine deemed the car “undriveable” because the retractable door handles on the $127,000 vehicle didn`t work during the test. The good news was Tesla picked up the car and repaired the handle glitch efficiently. Shares of Tesla were down a fraction today to $248.75.

HERERA: Does your 401(k) use high cost funds?

After a Supreme Court decision today, you may want to take a closer look. The justices ruled unanimously in favor of participants in employee retirement plans who object to company`s investment decisions, the ruling could make it easier for 401(k) plan participants to sue their employers for putting investments in their plans that impose excessive fees. The case stems from a lawsuit against Edison International (NYSE:EIX).

GRIFFETH: So, how do you know if your funds are — in 401(k)s are low cost or high cost? What should you be looking for?

Ivory Johnson joins us now. He`s founder of his own wealth management firm, Delancey Wealth Management. He`s a member of the CNBC financial network as well.

Ivory, good to see you. Welcome back.


GRIFFETH: High and low fees would be relative. So, what are we looking for? Is there a certain level? Is there a certain percentage?
How do you determine if the 401(k) fees you`re paying are excessive?

JOHNSON: Well, I think the big determinant is how big is your plan?
Obviously larger plans with $50 million and more, their fees are going to be relatively low because again, it`s cheaper by the dozen. The smaller the plans, which as you might expect are about 9 out of 10 plans are people with 100 or less participants. If you`re paying over 2 percent, with all of the fees, then you know that just by rule of thumb, that the plan is relatively expensive.

HERERA: How do you look within the plan? Where is the information contained for those who may have also kind of trusted that the plans that are in your 401(k), maybe they just assumed that they were low cost. How can you check?

JOHNSON: Well, you`re right. Most people aren`t even aware — I want to say half the participants aren`t aware there are fees. So, every –
– what your employer has to do, is give you a fee disclosure document. And that would delineate all of the fees and language that people can understand, so they understand that there`s an administration fees, there`s third party administration fees, as well as the investment management fees, and what I would do is add all these expenses up, divided by the account balance, that will give you the percent, the overall expense of your 401(k) plan.

GRIFFETH: What about these fund analyzer Web sites. I`m just looking at names of FINRA, there`s Morning Stars, there`s BrightScopes, what about those? Do they help?

JOHNSON: They do.

So, first, you want to look, what is the overall cost, the totality of it, of my 401(k) plan? And then as you start to dig down deeper and you identify, are the funds themselves expensive?

So, FINRA has a fund analyzer service where you can enter in the fund symbols, and it will show you what the cost would be over a certain period of time. By the same token, Morning Star, which I think is a valuable service, tells you what the expenses are.

And this is what you can see if there are other alternatives, you may have XYZ fund, which is a B share or an A share. You might see next to it that there are institutional shares available. And institutional shares obviously will be a little bit cheaper.

And then, BrightScope is a great opportunity also for usually plans with over $10 million, where you can type in your company`s name, and you can see if the plan relative to its peer group charges more or less than the other plans.

GRIFFETH: All right. Good information.

Ivory Johnson with Delancey Wealth Management — thanks for joining us tonight.

JOHNSON: Thank you.

GRIFFETH: And coming up, competing for the title, meet the high school students who may one day be the next chair of the Federal Reserve.


HERERA: Here`s what to watch tomorrow. As Courtney Reagan mentioned earlier in our program, earnings from Dow components Home Depot (NYSE:HD) and Walmart which could determine how the market fares. On the data front, housing starts were out, and JPMorgan (NYSE:JPM) Chase and Morgan Stanley
(NYSE:MS) will hold their annual shareholder meetings. That`s what`s on the agenda for Tuesday.

GRIFFETH: Well, the president of the Chicago Federal Reserve Bank has made the case to start hiking rates early next year. But during that same speech in Stockholm, Charles Evans also said an argument could be made for a rate increase this June, if the central bank was confident that inflation was going to move up and the first quarter economic weakness we saw was only temporary.

HERERA: And today, some high school students from across the opportunity got to test their knowledge of the Federal Reserve and economics, competing for the very prestigious title of national economics challenge winner.

And Steve Liesman, who knows a little something about this topic, moderated that competition.


It`s come down to this, 10,500 students competing across the country in the National Economics Challenge. Call it the spelling bee of economics.

And now, just four teams remain, vying for top honors in two divisions. And you can`t believe the drama in the first division. After
29 questions, the teams from Carmel High School in Indiana and Homestead High School in California are tied heading into the last question.

(on camera): Question 30 —

(voice-over): Carmel has a chance to win it, but buzzes in too early.

(on camera): Japan, United States —


UNIDENTIFIED MALE: That is incorrect. Steve, you may reread the question.

LIESMAN: I didn`t want it to come to this.

OK. Consider this list of countries and consider which has the largest gap of income between the rich and poor, Japan, the United States, or Brazil?


UNIDENTIFIED MALE: Brazil is correct.

LIESMAN (voice-over): Homestead wins the first round of the competition, which is put on by the Council for Economic Education, a group that teaches teachers how to teach economics to kids.

NAN MORRISON, COUNCIL FOR ECONOMIC EDUCATION PRESIDENT: We have been very successful, as you can see here today. We reached 55,000 teachers across the country and millions of kids.

LIESMAN: Kids like Emily Rowan (ph) from Mountain View High School in Minnesota could do the teach themselves.

(on camera): What is the shape of the marginal revenue curve based –

UNIDENTIFIED FEMALE: Horizontal lines?

UNIDENTIFIED MALE: That is correct. Please, can you reread the question?

LIESMAN: How can you do that? I mean, you can`t know what the next part of the question. I don`t know, whatever, whatever.

(voice-over): There were some incredible displays of brilliance from the competitors also from Carmel High School in Indiana. But in the end, Mountain View won.

If you`re looking for hope in American education, look no further than these kids. Among them could be the next Friedman, or Kane or Bernanke or Yellen.



GRIFFETH: Great stuff there.

Gasoline prices, meanwhile, are on the rise, just ahead of Memorial Day weekend. According to AAA, the national average for a gallon of regular unleaded is now $2.70. That`s up six cents from just a week ago.
But prices, let`s remember, still about a dollar lower than a year ago.

HERERA: And if you plan on flying this summer, get ready for crowded airports and packed planes. According to Airlines for America, which is an industry trade group, a record number of travelers will fly this summer.
U.S. airlines will carry on average nearly 2.5 million passengers a day,
4.5 percent more than last summer.

GRIFFETH: Well, the odds are in his favor, Kentucky Derby and Preakness winner American Pharoah is now the early favorite to make history and perhaps win the Triple Crown. A feat not achieved since 1978. Our cameras have been following the thoroughbred first at the derby and again this weekend at Pimlico.

Robert Frank has more.


ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): A torrential downpour and sloppy track conditions couldn`t stop Triple Crown contender American Pharoah. His owners, the Zayat family, watched in the pouring rain as their horse broke from the dreaded number one post.

But the 3-year-old colt stormed the racetrack, breaking from the inside rail, delivering a stunning performance, winning the second leg of the Triple Crown by seven lengths.


FRANK: American Pharoah`s Preakness performance earns Zayat stables a payout of $900,000.

UNIDENTIFIED MALE: I can`t believe this is ours. Oh, my God.

FRANK: And according to experts, boosted the champ`s value north of
$20 million.

Next stop, Belmont, for a chance at the coveted triple crown title, an elusive victory that hasn`t been seen since 1978.



HERERA: Good luck to him.


HERERA: That does it for NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera, thanks for joining us.

GRIFFETH: I`m Bill Griffeth. Have a great evening, everybody.
We`ll see you tomorrow.


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) 2015 CNBC, Inc.

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