Transcript: Nightly Business Report- October 29, 2015

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Blockbuster deal. Two
massive drug companies are work on what could be the biggest acquisition of
the year.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Anemic growth. What
caused the economy to hit the brakes and slow considerably in the third
quarter?

HERERA: New way to invest. Why ordinary people may soon be able to
fund projects that were once out of reach and get a share of the profits.

All that and more tonight on NIGHTLY BUSINESS REPORT for Thursday,
October 29th.

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

It could be a deal like no other. Pfizer (NYSE:PFE) and Allergan
(NYSE:AGN) are in early talks to merge. The combined company would create
the world`s largest drugmaker. Shares of both companies rose today,
Allergan (NYSE:AGN) gaining nearly 6 percent, as you see there, though
Pfizer (NYSE:PFE) did turn negative late in the day.

The potential tie-up is a complicated one, and it puts Pfizer
(NYSE:PFE) in a familiar position. Last year, it unsuccessfully pursued
AstraZeneca, but as Meg Tirrell reports, it now hopes for a different
outcome.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: Pfizer (NYSE:PFE)
confirmed today it`s in friendly discussions about a potential combination
with Irish drug company Allergan (NYSE:AGN), the maker of Botox. Analysts
expect the deal value could total $150 billion. This comes a year and a
half after Pfizer (NYSE:PFE) abandoned its $120 billion bid for
AstraZeneca, after the British drugmaker resisted its advances in a nasty
month-long battle.

Many think Allergan (NYSE:AGN) will be more willing. The company is
led by serial dealmaker Brent Saunders, who in just two years has amassed
almost $150 billion in deal activity.

He started at eye company Bausch & Lomb where as CEO he sold the
company to Valeant for almost $9 billion in 2013. Less than a year later,
at the helm of Forest Labs, he engineered a $25 billion sale to Actavis.
After unexpectedly taking the CEO job there, Sanders bought Botox maker
Allergan (NYSE:AGN) for $66 billion out from under competitor Valeant.
Then he changed Actavis` name to Allergan (NYSE:AGN).

Finally this summer, he agreed to sell Allergan`s generics business to
Teva for about $40 billion.

So why does this make Allergan (NYSE:AGN) a target for Pfizer
(NYSE:PFE)? The New York-based drug giant has been looking for a way to
lower its corporate tax rate. With Allergan (NYSE:AGN) in Ireland, Pfizer
(NYSE:PFE) could pursue an inversion deal, moving its headquarters
overseas. And though the move would be bound to draw political scrutiny,
analysts at Bernstein estimate it could take Pfizer`s tax rate down from
about 25 percent to 18 percent.

An overseas deal would also let Pfizer (NYSE:PFE) tap into its cash
held outside the U.S., about 2/3 of its $30 billion horde.

And analysts say it would strengthen the so-called innovative products
part of Pfizer`s business, for a potential split of the company in a couple
years. Not to mention blockbuster drugs in Botox and Alzheimer`s treatment
Namenda.

Some wonder if it`s an especially good time for deal-making in the
drug world with valuations depressed in the last few months.

CONNOR BROWNE, THORNBURG INVESTMENT MANAGEMENT: We`ve seen lots of
negative sentiment on drug prices, on pricing for drugs and biotech
products. That`s created some pressure in the space, some lower
valuations, and we think that that can help lead to some transactions.

TIRRELL: Before the news today, Allergan`s stock was down 15 percent
in the last three months. But Pfizer (NYSE:PFE) CEO Ian Read on the
company`s quarterly earnings call this week said that just because
valuations have come down, expectations haven`t. That`s why analysts peg a
potential deal for Allergan (NYSE:AGN) now trading around $305 at $350 to
$400 a share.

For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.

(END VIDEOTAPE)

HERERA: So why are we seeing a pickup in M&A activity, and who might
be next?

Sidney Dillard, the head of corporate investment banking at Loop
Capital, joins us now to discuss her outlook.

Welcome, Sidney. Nice to have you here.

SIDNEY DILLARD, LOOP CAPITAL HEAD OF INVESTMENT BANKING: Thank you.
It`s great to be with you.

HERERA: What is it in the backdrop right now that is making these
deals so attractive?

DILLARD: Well, one of the things that always makes M&A attractive is
just that companies are looking for how can we grow? Now, in the Pfizer
(NYSE:PFE)/Allergan (NYSE:AGN) transaction that`s been rumored — or that
Pfizer (NYSE:PFE) has confirmed that they`re having discussions, there`s
also the tax inversion opportunity here for Pfizer (NYSE:PFE) in terms of
driving down their tax rate.

But there`s also an opportunity for them to get growth from products
that they don`t have and specifically Botox, which is one of the — you
know, world`s best-known drug products.

MATHISEN: Are they buying growth, or are they buying their way to
higher earnings per share by cost cuts? Or a little of both?

DILLARD: Both. So there`s obviously — there`s definitely growth
with the product set that Allergan (NYSE:AGN) has and that Pfizer`s
obviously looking to fill in to its product set, which hasn`t been growing
nearly as much. Allergan (NYSE:AGN) has probably like a 10 percent growth
rate that they have, which is the highest amongst, you know, most of the
pharma companies.

So, there`s significant opportunity there that`s obviously of interest
to Pfizer (NYSE:PFE), in addition to the tax inversion which could, you
know, probably give them just Pfizer`s regular business about a billion
dollars more to the bottom line.

HERERA: So who might be next if this M&A activity looks as attractive
as apparently it does? What other companies are you looking at as possible
merger partners?

DILLARD: Well, you could have — let`s throw this out here. So you
could have — Google (NASDAQ:GOOG) could be looking at Uber or Lyft as an
example. Or you could have Yahoo (NASDAQ:YHOO)! looking at Yelp. You
know, are the kind of names set that we`re all familiar with and we hear a
lot. So, you could have things like that going on.

You could have others in the energy sector, particularly, you know,
kind of given what`s going on in that sector and what`s happened to
valuations. So — but, you know, those are some examples.

MATHISEN: Are these tax inversions, going back to the Allergan
(NYSE:AGN)-Pfizer (NYSE:PFE) possible tie-up, are they good for America?

DILLARD: That`s a really interesting question. You may recall that
when Walgreens and Boots Alliance combined, when Walgreen`s acquired Boots
Alliance, there was a lot of discussion out there about Walgreens doing a
tax inversion with that acquisition. They ultimately decided not to.
There was obviously a big firestorm in Washington about that.

I mean, I think ultimately, though, the CEOs of those companies are
focused on how it is that they create shareholder value. And so, I think
the bigger question is what their charge is, and so that is their charge.
So, if that`s the charge they`re focused on all the ways you`d do that
including tax inversion.

HERERA: Right.

DILLARD: You know, particularly dealing with what we`re dealing with
here in terms of our corporate tax rates in the U.S.

HERERA: Sidney, thank you so much. Appreciate your perspective.
Sidney Dillard with Loop Capital.

DILLARD: You`re very welcome.

MATHISEN: On Wall Street, stocks fell on mixed earnings results and
weaker than expected economic reports. More on that in a moment.

By the closing bell, the Dow Jones Industrial Average fell 23 points
to 17,755. NASDAQ ended 21 lower. And the S&P 500 was off by nearly a
point.

HERERA: To the economy, which slowed sharply in the third quarter.
The Commerce Department reported modest growth of 1.5 percent from July
through September. That marks a deceleration from the second quarter,
which saw growth of 3.9 percent.

Hampton Pearson takes a look at what`s holding the economy back and
whether investors should be concerned.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: A slowdown in
spending by consumers, and businesses cutting back on restocking warehouses
due to an inventory glut were the key factors in an economy that cooled off
in the third quarter.

Leading economists, however, say there`s no cause for alarm because
the inventory drag is temporary.

UNIDENTIFIED FEMALE: This is going to be your first new car?

PEARSON: And consumers are spending more on big ticket durable goods,
including automobiles.

LINDSEY PIEGZA, STIFEL NICOLAUS: I think the composition underlying
that top line decline was actually telling a more positive story.
Consumers were still out spending. Businesses were still investing, albeit
at a slower pace than we saw in the second quarter.

PEARSON: But there are concerns the economic expansion could be
losing steam. Year-over-year economic growth is just 2 percent. And job
growth has slowed. Monthly job gains averaging just 167,000 workers over
the last three months, compared to 260,000 per month in all of 2014.

And wage growth remains flat — factors that could impact future
consumer spending.

DAVID LEBOVITZ, JPMORGAN: The Fed has said that they understand
transitory effects are depressing inflation, namely a stronger dollar and
lower energy prices. These are transitory effects that are holding back
economic growth right now.

PEARSON: Leading economists say to get out of the 2 percent rut,
better fiscal policy from the federal government is needed.

JACK ABLIN, BMO PRIVATE BANK: A whole laundry list of things
including tax reform, immigration, and other things that Congress and the
president could pass to actually, you know, get the ball rolling again.

PEARSON: The two-year budget deal could be a start. It includes
increased spending for defense and domestic programs, and it puts an end to
market anxiety about the debt ceiling.

For NIGHTLY BUSINESS REPORT, I`m Hampton Pearson in Washington.

(END VIDEOTAPE)

MATHISEN: The number of homes that went under contract last month
fell. The National Association of Realtors reports that pending home sales
dropped 2.3 percent to the second lowest level of the year. That is the
second consecutive monthly drop.

The National Association of realtors attributed the latest decline to
a shortage of home listings.

HERERA: The number of Americans filing new applications for
unemployment benefits rose slightly last week. Jobless claims were up
1,000 to 260,000, a level that remains consistent with a strengthening job
market. This is the 34th straight week claims were below 300,000.

MATHISEN: From the U.S. economy to China, where the leaders of that
country approved a five-year plan that sets new growth targets and aims to
double the size of the economy by 2020. As a way to stimulate the economy,
the government abolished a major social policy.

Eunice Yoon reports from Beijing.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: China has decided
to end its policy restricting most families here to one child. Instead,
all couples across the country will be able to have two children. The
government made the change at a major conference here where leaders got
together to map out the social and economic agenda for the next five years.
The official state media said that leaders here wanted to address China`s
demographic issues, its rapidly aging population, and its shrinking
workforce, two problems that could act as a drag on growth.

The change follows a reform two years ago when the government decided
to loosen the policy to allow some families to have more children. But
some demographics experts worry that this latest policy change is coming
too little too late, and they say that as Chinese people have become
wealthier they`re already choosing to have fewer children.

The one-child policy is also considered a human rights issue. It`s
led to all sorts of abuses like stolen children and forced abortions. So,
some activists say this latest policy move is a step in the right direction
to allow more people to have bigger families.

For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.

(END VIDEOTAPE)

HERERA: And on that theory shares of baby formula maker Mead Johnson
rose today. As many believe it could indeed benefit from the elimination
of China`s one-child policy.

The company generates nearly a third of its sales from China. That`s
the company`s biggest market.

MATHISEN: William Lee joins us now to talk more about China and the
U.S. economy. He`s the head of North American economics at Citi.

Bill, welcome.

My question for you is, is the U.S. economy slowing and is it likely
to stay slow? And if it is, why is the Federal Reserve pointedly saying it
will raise interest rates in December?

WILLIAM LEE, CITI HEAD OF NORTH AMERICAN ECONOMICS: Well, Tyler, I
think the U.S. economy`s actually doing quite well. It`s growing in the 2
percent, 2 1/2 percent growth path. This quarter we actually had some good
adjustments because we`re trying to right the inventory drag that`s been
there because of the build-up in the first half of the year. So, this
inventory decumulation that we`re seeing is a good thing and it puts the
economy on a more balanced growth path.

HERERA: Do you still feel, Bill, as you did before that the U.S.
economy is the most resilient around the globe despite the fact that Europe
has made considerable inroads to strength?

LEE: You know, in your intro you showed the economy has mixed data.
Some data are strong, some data are weak. That`s exactly what we`d expect
at this stage of the recovery.

But overall, this economy has been the most bulletproof economy we`ve
seen in years. All of this changes we`ve made since the great financial
crisis have really made the economy much stronger.

MATHISEN: So, you see the 1.5 percent growth rate in the third
quarter as the outlier to the downside and that the more sustainable rate
of growth is what?

LEE: I think the more sustainable rate is given by domestic final
sales, which is close to 3 percent. So, I think we are clearly in that
path where aside from inventories, we — the bit of bad news in the horizon
would be the drag that we`re going to get from the appreciated dollar and I
think that`s what the Fed is also aware of as well.

HERERA: So do you think they will raise rates in December, or do you
think they`ll wait until 2016 or does it depend on the inflation forecast?

LEE: I think the story that was told to us in this last October
statement was so confounding, it was amazing. In September, we were told
they were ready to go because of the strong domestic economy but because of
China and everything else they decided to wait. Now we`re told that —
well, we are determined to move in December regardless.

Now, you`ve got to ask yourself, what is it that drives the Fed? I`m
pretty convinced it`s the markets that drive the Fed because it was the
market reactions that caused the Fed to be spooked, not China.

MATHISEN: Let`s talk about China. What do you expect there? This
five-year plan I think has growth growing at about, oh, 6 percent or
thereabouts the next few years. They want to double their economy by the
year 2020. Is that achievable?

LEE: It`s going to be a hope and a prayer right now, I think, because
right now, China`s going through that awful transition of trying to move to
a consumer society. Given the population growth has slowed down. The
slowing down is I think putting China on a much more sustainable growth
path that includes more consumption.

And with more consumption, you need more people to generate more
income. And that`s where I think China`s running into a problem. The
elderly is becoming a greater and greater burden on China. What we call
the dependency ratio. The number of old and young people that the young
working-age population`s got to support is starting to rise pretty
significantly.

So, we think that this policy goes a little bit in that right
direction.

MATHISEN: Bill, interesting analysis. We appreciate it. William Lee
with Citi — thanks.

LEE: Thanks for having me.

HERERA: And still ahead, how committed are some of the world`s
biggest oil companies to their dividends? As they continue to face the new
reality of low crude prices.

(MUSIC)

HERERA: The oil super majors are starting to release their quarterly
results amid the continuing slum in oil prices. Conoco Philips reported a
wider than expected loss of more than $1 billion and made big changes to
its spending plans.

Morgan Brennan has more on the fallout for big oil.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The energy
rout is taking another bite out of oil companies, as the world`s largest
producers see profits plunge.

Take Conoco Phillips, the largest oil producer in the U.S. without
refining operations. Conoco today reported a net loss of more than $1
billion. It also again cut capital expenditures as it braces for oil price
that are likely to stay lower for longer.

SCOTT HANOLD, RBC MANAGING DIRECTOR ENERGY RESEARCH: Conoco, if you
step back and look at it, did a pretty good job of bringing their spending
levels within their cash flows and I think certainly that`s going to be
more important and the focus will be on how do you maintain that in a lower
for longer environment, especially with a company that pays almost $4
billion in dividends annually.

BRENNAN: And Conoco isn`t alone. U.K.-based Royal Dutch Shell also
reported a huge loss for the third quarter, racking up $8 billion in
impairment charges after it abandoned massive projects in Canada and the
Arctic.

As the commodity price collapse continues to drag on, analysts say the
trends are a little different than the previous quarters.

HANOLD: Production growth has started to, you know, flatten out, in
some cases decline. And when you look at the big picture on both
commodities, oil and natural gas, certainly it`s all part of the balancing
equation. We didn`t see that in the second quarter. We saw growth and
pretty rampant growth.

Now, that`s starting to slow down quite a bit. So, you know,
certainly, that`s going to be the focus continually into 2016.

BRENNAN: And there will be more for investors to digest come Friday,
when the two biggest U.S. oil giants, ExxonMobil (NYSE:XOM) and Chevron
(NYSE:CVX), report results before the bell. Analysts expect both companies
to log their weakest third quarter profits in more than a decade.

And like others that have reported already, the focus will be on
production expectations and spending targets.

Yet despite plunging profits, suspended projects, job cuts and some
asset sales, or maybe really with the help of them, some oil majors are
maintaining payouts to investors.

ConocoPhillips (NYSE:COP) says it remains committed to its, quote,
“compelling dividend,” which is about 5 percent, and ahead of tomorrow`s
result, both Exxon and Chevron (NYSE:CVX) have boosted their dividend.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

MATHISEN: A disappointing outlook from Starbucks (NASDAQ:SBUX) is
where we begin tonight`s “Market Focus.”

The coffee chain`s sales and profit growth came in strong, but for the
holiday quarter, the company isn`t expecting results to meet analyst
estimates. Shares slipped initially in after-hours trading before coming
back slightly during the regular session. Shares were off more than 1
percent. They finished at $62.50.

LinkedIn (NYSE:LNKD) beat forecast as the company gained traction in
China. The social network for professionals earned more from its
recruitment services and business and saw sales rise nearly 40 percent from
the previous year. Shares popped in initial afterhours trading. During
the regular session, they rose nearly 2 percent to $217.

Aetna (NYSE:AET) reported mixed quarterlies, adjusted earnings topped
consensus while revenue came in below forecast. The company did hike its
full-year earnings forecast, despite reporting a slight dip in medical
membership. Shares up more than 3 percent to $114.86.

And MasterCard`s numbers better than expected, but revenue was below
consensus. Consumer incentives weighed on the payment company`s top line
results. Still the stock rose a fraction today to $100.59.

MGM unveiled plans to create a real estate investment trust, or a REIT
that will be made up of ten of its properties. The CEO explained the logic
behind the deal.

(BEGIN VIDEO CLIP)

JIM MURREN, MGM RESORTS INTERNATIONAL CEO: We got together with our
advisers and thought about how do we create the most amount of value for
all of our shareholders? We wanted to create not one but two really
healthy companies that had great balance sheets, that had great growth
potential.

(END VIDEO CLIP)

HERERA: Separately, the company`s earnings and revenues beat
estimates. Shares popped nearly 5 percent to $22.80.

Mixed results from Sherwin Williams. Revenue was shy of forecasts but
the paint company is upping its full-year outlook based on an increase in
sales when compared to last year. The stock rose 4 1/2 percent to $258.11.

A disappointing outlook weighed on shares of NXP Semiconductor in
today`s session. The company is predicting a revenue decline in the fourth
quarter, this as orders have fallen because of the slowing global economy.
Shares tumbled a full 20 percent to $73 even.

And investors getting a chance to react today to an earnings and
revenue miss from GoPro. The action camera-maker also offered a weak
holiday earnings outlook, but the CEO said a closer look at quarterlies
showed positive signs.

(BEGIN VIDEO CLIP)

NICK WOODMAN, GOPRO CEO: It`s too easy to focus specifically only on
the fact that we missed expectations for the quarter. It actually still is
a terrific quarter. We grew 43 percent year over year for the quarter.
For the first three quarters year to date, we were up 55 percent year over
year.

(END VIDEO CLIP)

HERERA: Shares slid nonetheless by 15 percent to $25.62.

MATHISEN: Deutsche Bank plans to shed 35,000 jobs. It will also close
operations in 10 companies. The German bank report aid quarterly loss of
around $6.5 billion. Today, the co-CEO said the company`s making some hard
decisions, it`s reorganizing to make it less complex, and hopefully more
profitable.

HERERA: Representative Paul Ryan has been elected the 54th speaker of
the House. The vote today followed the recent passage of a sweeping two-
year bipartisan budget deal. The Wisconsin Republican replaces John
Boehner who retires from Congress tomorrow.

In a speech following the vote, Ryan said there`s a lot of work to get
done.

(BEGIN VIDEO CLIP)

REP. PAUL RYAN (R), SPEAKER OF THE HOUSE: Let`s be frank: the House
is broken. We`re not solving problems. We`re adding to them. And I am
not interested in laying blame. We are not settling scores. We are wiping
the slate clean.

(END VIDEO CLIP)

HERERA: Just nine hard-line conservatives voted against Ryan.

MATHISEN: Coming up, why tomorrow may ring in a new era of investing
for ordinary people like you and me.

(MUSIC)

HERERA: Here`s a look at what to watch for tomorrow. Dow components
Exxon and Chevron (NYSE:CVX) report earnings. A read on the consumer with
the personal and consumer spending reports. Also, consumer sentiment is
out. And that is what to watch for on Friday.

MATHISEN: Microsoft (NASDAQ:MSFT) now plans a $13 billion U.S. bond
sale. The tech giant`s biggest ever. According to reports, the company,
which has a AAA rating, will sell the debt in as many as seven parts. The
longest portion is a 40-year bond that may yield 1.8 percent.

HERERA: CVS (NYSE:CVS) and Express (NYSE:EXPR) Scripts are cutting
off business with the pharmacy associated with Valeant Pharmaceuticals. As
we`ve been reporting, claims have surfaced that Valeant uses a firm called
Philidor and other specialty pharmacies to prop up sales. Valeant has
defended its practices but says it has hired a committee to review its
relationships. Shares fell initially in after-hours.

MATHISEN: The Securities and Exchange Commission is expected to
approve a rule that will allow start-ups to raise money from ordinary
people. The rule would lift a ban that only basically lets wealthy people
invest in these projects.

And while it may sound like the playing field is being leveled, as Bob
Pisani tells us, there are a lot of risks involved.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Mom and pop
crowdfunding for start-ups is about to become a reality. Now, that`s good
news, but it also comes with a lot of red flags.

Tomorrow, the SEC is expected to issue a final rule that will allow
small companies to directly raise debt or equity from friends, from
families, and interested investors. This is a radical idea. Since the
1930s only accredited investors, these are rich people with a million
dollars in net workout or who earn at least 200,000 per year, have been
allowed to invest in start-ups.

Now, that`s about to change, and soon anyone will be able to invest
through websites called funding portals that will be maintained by broker-
dealers. So think of it as Kickstarter for non-public companies. But it`s
a little bit different than Kickstarter. When you invest in a Kickstarter
project like a movie, for example, you don`t have any equity in it. You
only get a reward like a copy of the movie.

But this is equity. You would actually own a piece of the company
here. It sounds terrific, doesn`t it? I mean, why should only rich people
investing in hedge funds and venture capital firms and angel investors and
all that stuff be allowed to get in on the future Ubers of the world? How
about the middle class? So, you can see why this is generating a lot of
excitement. Leverage the Internet to grow companies, job creation, wealth
creation, less red tape, less costly regulation.

But you can also see why the SEC has taken three years to look
carefully at this. How do you strike a balance between protecting
investors against fraud and making the regulations so onerous that it`s
prohibitively expensive to raise money?

We don`t know. We`ll find out tomorrow.

For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock
Exchange.

(END VIDEOTAPE)

HERERA: And that`s NIGHTLY BUSINESS REPORT for tonight. I`m Sue
Herera. Thanks for watching.

MATHISEN: And thanks from me as well. I`m Tyler Mathisen. Have a
great evening, everybody. And we hope to see you right back here tomorrow
night.

END

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.

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