BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Stalemate talks between Greece and its creditors go nowhere. And that’s not the only thing rattling investors. There’s also uncertainty surrounding the Fed.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Few and far between. Why deals in the home building sector like today’s merger of Ryland and Standard Pacific (NYSE:SPF) don’t happen often.
GRIFFETH: Consolidation waves from Cigna, to Anthem, to UnitedHealth and Aetna (NYSE:AET). Is merger-mania catching on in the health care industry?
All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, June the 15th.
And we bid you good evening, everybody. I’m Bill Griffeth, in tonight for Tyler Mathisen.
HERERA: Great to have you with us.
GRIFFETH: Thank you.
HERERA: I’m Sue Herrera.
Well, it’s a new week, of course, but a familiar worry. Greece, its debt crisis appears to be deepening and that rattled investors around the world. European Union officials say Athens has offered no new concessions needed to secure funding. Athens says it won’t give in to demands for more pension and wage cuts.
Well, that stalemate pressured stocks at the open, although the major indices paired some of the losses. By the close, the Dow Jones Industrial Average fell 107 points to 17,791, well off the slide of about 200 points earlier in the day. The NASDAQ dropped 21 and the S&P 500 was off nine points. Stocks in Europe got hit even harder.
Louisa Bojesen has more from London.
LOUISA BOJESEN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Another day of selling for European stocks as last ditch talks with Greece over the weekend failed to result in a deal. All major European indices closing in the red with the Greek market being the clear underperformer out there, pulled done by weakness especially seen in banking stocks.
Now, speaking before European parliament earlier, the ECB president, Mario Draghi, he urged both sides to move quickly towards a deal but he also said that ball now is squarely in the Greek government’s court.
CNBC spoke exclusively to the former Greek Prime Minister George Papandreou, he said that Greece and international lenders, they both need to make compromises.
GEORGE PAPANDREOU, FORMER GREEK PRIME MINISTER: We really need both sides to climb down from their high horses and really work on a compromise, an honorable compromise to find a solution and move forward on a sustainable way.
BOJESEN: Now, Germany’s EU commissioner has warned that Europe must prepare for a state of emergency from the 1st of July if no deal has been reached by then.
For NIGHTLY BUSINESS REPORT, I’m Louisa Bojesen, in London.
GRIFFETH: And the breakdown in those Greek talks kicked off a week that does promise to be a big one for the markets.
Dominic Chu tells us now what’s on the calendar and why investors need to pay close attention.
DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: There’s a slew of potentially market-moving news on the economic and corporate agenda this week. But three in particular are going to get outsize attention.
On Tuesday, the fed kicks off two days worth of meetings that will ultimately lead to a decision on whether it will look to raise interest rates this month. For the most part, many experts aren’t expecting any fireworks from the Fed.
MICHAEL FARR, FARR, MILLER & WASHINGTON: I don’t think they’re going to raise in June largely because they have — they haven’t really prepared markets for that. They haven’t broadcast that. I think once we see a little bit more evidence for consumer spending and really the economy takes some real traction in this improvement that we’ seeing, I think the Fed will be more comfortable.
CHU: Also this week, there will be a lot of eyes trained on any new developments out of Greece and it’s continuing negotiations for a bailout practice from other European nations. Talks broke down this past weekend and now the threat of a possible debt default by the country is adding volatility to markets globally. There are risks but not yet a sense of panic as many believe a deal will ultimately be struck.
ART HOGAN, WUNDERLICH SECURITIES: My guess is this latest deadline feels as binary as any we’ve seen. My guess also is that Greece will be in the Eurozone as long as Germany wants them there. So, to that end, the IMF and the ECB will try to find a way to extend and get something on both sides that’s agreeable and move this forward.
CHU: That’s the big picture.
Now, on the company specific or micro front, both software giant Oracle (NASDAQ:ORCL) and shipping company FedEx (NYSE:FDX) will report earnings this week, both of which could tell a story about the health of certain parts of the economy.
JEROME CASTELLINI, CASTLEARK MANAGEMENT: We’re looking to see that FedEx’s earnings and revenue lines continue to expand as a sign of where the economy is going. We want to make sure that’s — that’s kept its momentum. Similar with Oracle (NASDAQ:ORCL), we want to see that their orders and their earnings progression continues as an expression of where the economy is going to be.
CHU: Depending on how those three events take shape, each could have a real impact on how markets develop this early on in the summer.
For NIGHTLY BUSINESS REPORT, I’m Dominic Chu.
HERERA: And joining us now to talk more about the big week ahead and what it will mean for markets is Kristina Hooper. She is senior U.S. investment strategist with Allianz Global Investors.
Good to see you, Kristina.
KRISTINA HOOPER, ALLIANZ GLOBAL INVESTORS U.S. INVESTEMNT STRATEGIST: Great to see you.
HERERA: So, the Fed is one of the top positions on your list at this point. What do you need to hear from the Fed chief, Ms. Yellen?
HOOPER: Well, what we need to hear from Chair Yellen and what we expect to hear is an emphasis on focusing on the path of rate hikes as opposed to the initial liftoff. We know that market participants are getting more nervous about when the Fed will begin acting as it becomes more likely that Fed will act before the fourth quarter, given the economic data we’ve seen recently.
And so, what we need to hear Chair Yellen say is to really down play the importance of initial liftoff. And emphasize the importance of the path of rate hikes, which we expect to be relatively low and take far longer to get to the end of the cycle.
GRIFFETH: Do you sense that the markets want the Fed to cut to raise rates sooner rather than later? It is something they fear or something they would celebrate?
HOOPER: It seems that most market participants fear it. However, there is a growing group of market participates that would likely celebrate it. At the end of the day, our expectation is that most market participates will take it quite well after some kind of initial volatility because they’ll recognize that it represents a vote of confidence for the economy.
HERERA: Kristina, a lot of people are going to be watching inflation numbers that we got later this week. How key will that be as you form your investment strategy for clients?
HOOPER: Well, inflation is becoming more important. But keep in mind that it is at a low level today. So, it’s more about watching it carefully as we move forward through the year. However, we recognize and we advise clients to always be thinking about inflation and be hedging it in portfolios.
GRIFFETH: And what about the talks with Greece? Obviously, they have the debt payments and everything due on June 30th. But there are other deadlines this Thursday as well in terms of the talks with European officials. What’s an investor to do with all of that right now?
HOOPER: Well, investors need to recognize that the saga in Greece will likely continue and that it will create noise on the margins. But investors, if they have a long enough time horizon, need to be focused on their goals and how they can achieve goals. And that’s going to be delivered by having adequate exposure to stocks, including those sectors that can provide a higher level of growth in the overall market, as well as a significant amount of stocks that can provide dividends, because dividend income is very important in this low yield environment.
HERERA: All right. Kristina, thank you. Good to see you again.
HOOPER: Thanks for having me.
HERERA: Kristina Hooper with Allianz Global Investors.
GRIFFETH: And now to the economy where the rising dollar and weak global demand appear to be further pressuring the manufacturing sector. Industrial production, which measures the output of U.S. factories, utilities and mines decreased by 0.2 percent from the prior month. Meantime, homebuilders’ sentiment rose more than expected in June, hitting its highest level since September. National Association of Homebuilders says it expects optimism to strengthen further in the months ahead.
HERERA: Two big homebuilders are merging. Ryland and Standard Pacific (NYSE:SPF) are getting together in a $5 billion deal. The combined company will create the fourth largest homebuilder in the country. Investors like the move, sending shares of both Ryland and Standard Pacific (NYSE:SPF) up about 5 percent.
Bob Pisani has more on what’s driving the deal and why mergers in this sector are so rare.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Homebuilding mergers are fairly rare events. Why? Builders don’t like to buy each other because what they really want is land. That’s what’s scarce. So why pay a premium for operations when all you want is land? You buy the land.
Still, some very good reasons why this deal makes sense for both sides.
First, both companies diversify. Specifically, the combined company would have a strong presence in California. For Ryland, sales go from 9 percent to revenues to 27 percent today with lower exposure to the Midwest and mid-Atlantic regions.
Second, the combined company would have more land to develop and as I said, that’s the end game for all builders.
Finally, the combined company would have a good mix of first time and move up buyers.
Now, one thing the deal doesn’t have is a big premium. While it’s being billed as a merger of equals, Standard Pacific (NYSE:SPF) is basically offering to merge with Ryland at the market price. That suggests neither side thinks housing will be seeing robust growth in the near future.
For NIGHTLY BUSINESS REPORT, I’m Bob Pisani at the New York Stock Exchange.
GRIFFETH: Meantime, some of the world’s department store chains are also getting together. In this case, it’s Hudson’s Bay, the owner of Saks (NYSE:SKS) Fifth Avenue and Lord & Taylor. They’re buying a big German department store and its Belgian subsidiary for about $3 billion, including debt. Hudson’s Bay is based in Canada. This deal will expand it further into Europe.
HERERA: Drugstore chain CVS (NYSE:CVS) Health will acquire Target’s pharmacy and clinic business for almost $2 billion. CVS (NYSE:CVS) will gain more than 1,600 pharmacies from Target (NYSE:TGT) in 47 states and then operate them under the CVS (NYSE:CVS) brand name in Target (NYSE:TGT) stores. CVS (NYSE:CVS) Health says the deal will significantly increase sales and prescriptions. Shares of both CVS (NYSE:CVS) Health and Target (NYSE:TGT) rose in trading today.
GRIFFETH: And today’s speculation is any indication, another consolidation wave may be coming to the health care space. First, there are reports that Cigna rebuffed a takeover deal from Anthem. And another that United Health is also eyeing Cigna and possibly Aetna (NYSE:AET). The speculation sent shares of all four stocks higher today.
Bertha Coombs sorts it out for us.
BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Every day, roughly 10,000 baby boomers turn 65, becoming eligible for Medicare, providing health plans for them is a booming business and that’s part of what’s driving big health insurers to look for greater scale in Medicare.
ANA GUPTE, LEERINK MANAGING DIRECTOR: We’ve been saying for a while now that the five insurers will go down to three big players so that they have the scale to capitalize on all the opportunities that’s being afforded by Obamacare and the privatization of Medicare.
COOMBS: Cigna reportedly rejected a bid of $175 a share from Anthem, the nation’s biggest Blue Cross operator, while according to Dow Jones, UnitedHealth, the nation’s largest insurer, is also eyeing the Connecticut-based insurer.
But Cigna CEO David Cordani and the board also want to grow their Medicare business after acquiring Medicare provider Health Spring three years ago. Just last month, Cigna was said to be among the suitors for Medicare giant Humana (NYSE:HUM) which was reportedly also being courted by Aetna (NYSE:AET) and Anthem.
GUPTE: If Cigna paid the right price for Humana (NYSE:HUM), I wouldn’t put that deal out of the question. I think Humana (NYSE:HUM) is clearly seeking, you know, certain valuation and there have been more than one suitor at the table, with Cigna and Aetna (NYSE:AET) reportedly rumored to be in the mix, you know, Anthem is clearly in the mix as well.
As far as the cultures of Cigna and Humana (NYSE:HUM) and the management teams, I think there is a fair degree of compatibility.
So, for the right price, you know, Cigna could be a buyer or a seller.
COOMBS (on camera): Susquehanna analyst Chris Rigg describes the insurance sector right now like a big game of Pac-man. If Cigna is acquired by Anthem that, means that Humana (NYSE:HUM) will likely go to Aetna (NYSE:AET) for a lower premium. But if Cigna doesn’t want to sell, its best defense will be to go after Humana (NYSE:HUM) and pay up. Either way, he says, it’s crazy times ahead.
Bertha Combs, NIGHTLY BUSINESS REPORT, New York.
HERERA: Well, from speculation in health care to the increasing role technology is playing in medicine. Today, a who’s who of the industry gathered at the First Annual Klick Ideas Exchange, where futuristic health technologies were on at agenda.
Meg Tirrell has more.
MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: Today in Philadelphia, it was the tech part of biotech in focus. Executives, scientists, physicians and even former President Bill Clinton met to discuss the future of health care. On display, everything from holograms, to 3D printing, to virtual reality.
DR. ERIC TOPOL, SCRIPPS TRANSLATIONAL SCIENCE INSTITUTE: We’re seeing the tech revolution finally come into the medical cocoon.
TIRRELL: Event host Klick Health said using virtual reality to improve communication between drug companies, doctors, and patients about how medicines work, taking viewers, for example, inside the body to travel through the bloodstream.
(on camera): Using a technology owned by Facebook (NASDAQ:FB) called Oculus Rift, Klick says that the technology in the future could used for everything from research and drug development to surgical training.
KEITH LIU, KLICK HEALTH V.P. INNOVATION: In the fast, you’d have to train in theater as a surgeon just like a pilot has to train in the air. But as we’ve seen over the last 20, 30 years, pilots are now getting much of their training, the majority of their training actually in simulation.
TIRRELL (voice-over): Biotech CEOs like United Therapeutics’ Martine Rothblatt who previously founded Sirius Radio shared their visions for the future as well.
MARTINE ROTHBLATT, UNITED THERAPEUTICS CHMN AND CEO: A million Americans die each year of end stage organ disease, about a quarter million in lung disease, even more in stage kidney, liver, and heart disease. And by being able to provide these million Americans with a replacement organ, you would have a level of revenues which was something on the order of $10 billion per year.
TIRRELL: But amid the sci-fi discussions, Dr. Ezekiel Emanuel of the University of Pennsylvania raised increasingly urgent questions. What is this all going to cost and how will we pay for it?
DR. EZEKIEL EMANUEL, UNIV. OF PENNSYLVANIA: We end up taking the technology, which may be very cost effective for a small group and applying it much more broadly. And one of the consequences there is the bang, the benefit that you end up getting, any costs that you had quickly becomes dissipated.
TIRRELL: He forecasts the costs debate will be increasingly discussed as the presidential election heats up.
For NIGHTLY BUSINESS REPORT, I’m Meg Terrell in Philadelphia.
GRIFFETH: And still ahead, the one thing that costs corporate America tens of billions of dollars in the first quarter. The answer, straight ahead.
HERERA: United Technologies (NYSE:UTX) plans to sell or spin off its Sikorsky aircraft unit. The company says the sale would shave about 10 cents a share off of 2015 earnings, a spinoff 20 cents and a final decision is expected soon.
Phil LeBeau spoke to United Tech’s CEO Greg Hayes at a very busy Paris air show.
(BEGIN VIDEO CLIP)
GREG HAYES, UNITED TECHNOLOGIES CEO: The board decided last week that we would see either a spin or a sale. And I think by the end of July, the next 60 days, we’ll have a final determination which of those two options it’s going to be.
(END VIDEO CLIP)
HERERA: Sikorsky makes the Blackhawk helicopters which are favored by the U.S. military. Shares of the Dow component fell 2.5 percent.
GRIFFETH: And that wasn’t the only news made at that Paris air show. The two largest aircraft makers Airbus and Boeing (NYSE:BA) kicked off the event with a number of big deals for their jet liners.
Phil LeBeau back with more from Paris.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: A busy day here at the Paris air show with Boeing (NYSE:BA) and Airbus focusing less on the number of planes ordered, which is clearly down than in past years, and focusing more on the types of planes and the airlines that are ordering those aircraft.
Airbus announced Saudi Arabia Airlines will be the launch customer for the new A330-300 regional plane which will be used on high volume routes in the Middle East and in Asia.
Meanwhile, Airbus says its new plant in Mobile, Alabama, is on track to open in September and deliver its first finished plane next year. The plane maker is prepared to grow as it expands production.
FABRICE BREGIER, AIRBUS CEO: We have better control of our supply chain. We know how to work together with them, to anticipate the issues. So, all in all, I’m pretty confident that it will work.
LEBEAU: Meanwhile, Boeing (NYSE:BA) announced Qatar Airways will buy 10 of the company’s 777-8X airplanes. With a backlog of more than 5,000 planes, Boeing (NYSE:BA) is expecting to set a new record with more than 750 planes being delivered this year.
And CEO Jim McNerney says his company is prime to profit on those deliveries.
JAMES MCNERNEY, BOEING CHAIRMAN & CEO: I think it’s blocking and tackling. I think it’s doing the job. I mean, volume is your friend when you’re trying to make money. We have big fixed costs. We have record deliveries the industry has never seen a company that delivers as many airplanes as we delivered last year.
LEBEAU: Finally, the new C-series single aisle commercial airplane by Bombardier is taking flight here in Paris and is really one of the more interesting stories. Despite numerous problems and delays, Bombardier says the C Series will go into service in the middle of next year. And when it does, Bombardier says orders for the C Series will finally take off.
At the Paris air show, Phil LeBeau, NIGHTLY BUSINESS REPORT, Paris, France.
HERERA: We begin tonight’s “Market Focus” with a late announcement from Gap (NYSE:GPS). The retailer is closing 175 of its namesake stores and cutting 250 jobs at its headquarters as it tries to strengthen its struggling brand.
The company which is also the parent of names like Old Navy and Banana Republic says it expects annual sales losses of about $300 million because of those closures. Shares were higher initially after the bell. Before the close, the stock was off a fraction to $38.20.
Some competition for Netflix (NASDAQ:NFLX). Chinese e-commerce giant Alibaba says it plans to launch a rival pay-to-watch video subscription service in China within a couple of months. Shares of Netflix (NASDAQ:NFLX) fell 1 percent to $654.02.
GRIFFETH: Cox Automotive, the owner of Kelley Blue Book and AutoTrader, they’re going to buy Dealertrack in a deal valued at $4 billion. The combination is expected to allow the firms to provide a wide range of software for the auto industry. And the market loved it. Shares soared, up 58 percent to $62.98.
And some promising news for Bluebird’s sickle-cell drug. The experimental treatment got encouraging results in a one-patient study involving a French teenager. But the shares were lower, though, fell by more than 1 percent to $177.78 in today’s session.
HERERA: Gun maker Colt files for bankruptcy. The company warned that it needs a quick sale to survive. The gun maker estimate that’s it owes roughly $500 million to about 50 creditors. Guns made by the 179-year-old company were carried by Union troops in the civil war.
GRIFFETH: Well, the market knew it would not be pretty. But now a new report shows just how much dame the rising dollar inflicted on corporate America.
Sara Eisen has details.
SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): From Ford to Facebook (NASDAQ:FB) to Pfizer (NYSE:PFE), companies across industries are complaining about a stronger dollar cutting into their sales abroad. Now we know just how much it’s costing. About $29 billion shaved off the bottom line from North American companies in the first three months of the year.
That’s the latest from FiREapps, which advises companies on managing their foreign sales exposure. If you add in European companies who got hit hard from the Russian ruble nearly 40 percent slide in a year, the cost of currency swings for companies is $31 billion. That’s 57 percent more than last quarter and nearly four times more than a year ago.
For American multinationals, the main culprit was the euro, falling more than 11 percent during the quarter. But companies also blame the yen, ruble, Brazilian real and British pound for losses.
BRIAN BELSKI, BMO CAPITAL MARKETS MANAGING DIRECTOR: You don’t want to focus on those companies where a majority, a vast majority, 80 percent, 90 percent of the revenues come from overseas. You want to be in a diversified brand name company that can weather the storm because for all intents and purposes, the world is still kind of working through a lot of volatility on the economic front.
And the best companies in the world are right here in America.
EISEN: Some companies like Coca-Cola (NYSE:KO) do hedge their foreign exposure in the currency markets to protect themselves from losses. But that’s harder to do with less traded emerging market currencies like Brazil and Russia, since currencies have plunged dramatically. Other companies like Procter & Gamble (NYSE:PG) and Pepsi have said they’re raising prices for consumer items on shelves abroad to help offset the currency losses.
(on camera): There is a silver lining. That is the euro is actually stronger against the dollar so far this quarter, up 4.5 percent, which could provide some much needed relief for American companies that do business in Europe.
Longer term though, Wall Street expects the U.S. dollar to continue to strengthen as the Federal Reserve prepares to raise interest rates. So, companies are going to have to get creative and prepare for more pain when it comes to currencies and some of the most brutal swings in history.
For NIGHTLY BUSINESS REPORT, I’m Sara Eisen.
HERERA: Coming up, a dramatic change in the City by the Bay. We’ll tell you why the views in San Francisco are set to change.
GRIFFETH: Well, the former CEO of American International Group (NYSE:AIG) prevailed in his lawsuit against the U.S. government, sort of. Hank Greenberg contended that the Federal Reserve overstepped its bounds when it bailed out the giant insurer back in 2008 and took an 80 percent stake in the company’s equity in the process. Though the judge did side with Greenberg, he declined to award any monetary damages because it was not shown that shareholders had been damaged by the equity stake. Greenberg had been seeking $40 billion in compensation.
HERERA: And finally tonight, the San Francisco skyline is changing. In a city where real estate prices are literally sky high, one new building is following suit.
Josh Lipton gives us an exclusive look at the tallest residential tower west of Chicago.
JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It’s the start of what will be a historic building in San Francisco, one that will dramatically change the skyline of the City by the Bay. 181 Fremont Street is located in Soma, a neighborhood that’s home to hot tech companies, including Salesforce, Airbnb, and Pinterest. The top 17 floors of the 70-story tower will be luxury residences, with some of the highest price tags in San Francisco, a city with far more demand than supply when it comes to real estate.
ALAN MARK, THE MARK COMPANY PRESIDENT: So many people are able to get jobs here in the tech world, biotech, health care, finance. And the big problem is finding a place to live. So I think when you look at the companies that are here, from Airbnb, Spotify, Salesforce, Uber, Lyft, LinkedIn (NYSE:LNKD), people want to work for a lot of these companies.
LIPTON: The condos will start at $3 million while some units will go north of $8 million. The penthouse has yet to be officially priced.
Potential buyers include foreign investors and, of course, tech titan from Silicon Valley. The building has been designed with them in mind. Everything in the condos, from the sound system to the heat can be controlled with an iPhone.
But what if the tech boom goes bust and brings real estate prices down with it?
Alan Mark isn’t worried.
MARK: We really won’t have much inventory right through this decade. On top of that, we have 3.5 percent unemployment, second lowest in the country. We created more jobs than 47 states. So, there’s continued growth. This is where people really want to live.
LIPTON (on camera): But will they want to live in a high-rise in an all overpriced, overcrowded city? We’re going to soon find out. Units go on sale starting this fall and Alan Mark says he’s already got interested buyers.
For NIGHTLY BUSINESS REPORT, I’m Josh Lipton in San Francisco.
HERERA: Imagine the view.
GRIFFETH: Wow. I was just going to say. I think I’d pay that amount for that view. Imagine that 360 view of all of San Francisco. Just beautiful.
HERERA: Beautiful, but pricey.
That’s NIGHTLY BUSINESS REPORT for tonight, I’m Sue Herera. Thanks for watching.
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 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) 2015 CNBC, Inc.