Transcript: Nightly Business Report – June 16, 2016

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Power struggle.  Ninety-three-
year-old Sumner Redstone purges Viacom`s board of directors, deepening the turmoil at one of America`s                                                                     most iconic media companies.

Global hot spot.  From political uncertainty in Britain to economic chaos
in Venezuela, the global risks to the market are rising.

And a business first.  Microsoft breaks a corporate taboo, partnering with
a company that operates in the fast-growing marijuana industry.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday,
June 16th.

Good evening, everyone, and welcome.  I`m Sue Herera.  Tyler Mathisen is on
assignment tonight.

The next episode of the Viacom drama is here.  Controlling shareholder
Sumner Redstone kicked five of Viacom`s directors, including CEO Philippe
Dauman off the company`s board.  The move deepens the turmoil and extends
the incredible battle over Redstone`s iconic media empire.  Shares of
Viacom rallied on the news, climbing more than 6 percent.

Viacom meanwhile issued a statement, pointing fingers at Redstone`s
daughter Shari, saying, quote, “This is a brazen and demonstrably invalid
attempt by Ms. Redstone to gain control of Viacom and its management,” end
quote.

So, how does this one play out?

Tom Eagan, media analyst at Telsey Advisory Group joins us now.

Tom, welcome.  Nice to have you.

TOM EAGAN, TELSEY ADVISORY GROUP SR. MEDIA ANALYST:  Thanks, Sue.

HERERA:  I guess one of the questions is, who do you think actually made
this move?  Sumner Redstone, Ms. Redstone, or the Board of National
Amusements, because when the story first came out, it was billed as a
National Amusement Board move.  Who do you think did it?

EAGAN:  You know, I`m not really sure if it matters whether it`s Sumner or
daughter Shari at this point.  I think that, you know, since they have this
— since they really control National Amusements and the they have 80
percent control of Viacom, again, I think that`s what`s going to speak
here.

HERERA:  What does this do for the company?  Does it basically release some
value for the company?  Or not?

EAGAN:  Well, you know, Viacom trades at about eight times its EPS.  That`s
below, you know, 12, 13, 14 for other major media companies.  So, part of
it is, their performance over the past couple of years.  But it`s also
sentiment.  The sentiment on the stock is terrible.

So, I think that what you`ve seen over the past month or so, what you`re
going to continue to see is sentiment improving on the stock.

HERERA:  What do you think happens next?

EAGAN:  I think the next event is probably the — this new board trying to
oust Philippe Dauman as CEO of the company.  It would appear that they have
been talking to other potential CEOs.  Maybe they`re farther along than we
had expected.

HERERA:  Well, the story when it came out today was that those directors
were out, including Dauman, and they were going to Delaware court to have
that declared legal.  You think maybe there`s a second chapter to that?

EAGAN:  Well, you know, the provision in the Delaware court that is
different from other courts, it allows the individuals here to seek
validation from the court.  So, both the National Amusements side and the
Viacom board side have both gone to the court.

HERERA:  All right.

EAGAN:  So to your point, Sue, so maybe one of the next events here will be
the court ruling.

HERERA:  Right.  What about consolidation in that industry, say a
Viacom/CBS, you know, merger of those two properties?  Is that a viable
option next or not?

EAGAN:  Well, I think it`s an option.  It`s one that we don`t think makes
sense.  I mean, we did an analysis that said, if CBS were to fall by 5
percent to 10 percent, should they merge, then Viacom would have to
increase by 15 percent to 20 percent to be market cap neutral.  So, I don`t
think you get that kind of move up.  So, to us it doesn`t really make
sense, it would be value-destroying.

HERERA:  All right.  Thank you, Tom.  Pleasure.

EAGAN:  Of course.

HERERA:  Tom Eagan with Telsey Advisory Group.

Well, a massive u-turn on Wall Street today.  The Dow breaking its five-day
losing streak after reversing course midday, ending higher after falling
nearly 170 points.  By the close the Dow Jones Industrial Average climbed
92 points to 17,733.  The NASDAQ added nearly 10.  And the S&P 500 gained
6.

But the higher finish doesn`t mean all of the market anxiety is gone, far
from it.  If anything, what we saw today confirms that there`s still a lot
of confusion among investors.

Japan`s central bank, along with the Bank of England kept interest rates
unchanged and signaled increased concerns about the health of the global
economy.  And that sent government bond yields to near three-year lows.
And gold prices rose while oil prices fell.

And many say that the biggest risk to the market is the possible exit of
the United Kingdom from the European Union.  Central banks around the world
are acknowledging it as Britons get ready to go to the polls one week from
today.

Wilfred Frost tells us what investors should watch if they vote to leave
the E.U.

(BEGIN VIDEOTAPE)

WILFRED FROST, NIGHTLY BUSINESS REPORT CORRESPONDENT:  If Britain votes to
leave, what should you watch out for?  The first thing is pressure on U.K.
Prime Minister David Cameron to resign.  If he does, the government is
dissolved but we do not get fresh nationwide elections as all members of
parliament remain the same.

We would see a battle within the conservative party to be the new party
leader, which would take a few months.

Forrest Johnson would be the clear favorite.  However, election rules mean
this is not a simple populist vote and other candidates would certainly
have a chance.

Second, watch for immediate and systemic financial contagion.  The risk
though of this is very low because the exit vote would just mark the start
of separation negotiations.

Furthermore, the U.K. is not part of a single currency so immediate banking
contagion fears are reduced.  This is perhaps why we`ve not yet seen a
sharp reduction in U.S. equities.

Third, over the medium term, watch for the impact on U.K. and European
growth.  Negotiations will likely take anywhere from two to seven years
depending who you listen to, this will reduce investment and with it,
growth.

Finally, and perhaps most importantly, in the longer term, watch for a
political reaction across Europe.  Do the anti-E.U. parties like the
National Front in France, Podemos in Spain, and AfD in Germany gain
support?  The key will be maintaining the pro-E.U. status quo in terms of
governments in French and German elections in 2017 would be crucial for the
long-term future of the rest of the European Union.

For NIGHTLY BUSINESS REPORT, I`m Wilfred Frost.

(END VIDEOTAPE)

HERERA:  And there is another global hot spot, Venezuela.  That country`s
economy is under intense strain because of the long-running collapse in oil
prices and economic mismanagement.

And as Michelle Caruso-Cabrera reports, the pain is intensifying.

(BEGIN VIDEOTAPE)

MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Food riots
and protests erupting throughout Venezuela on a daily basis as people grow
desperate for basic goods.  Outside supermarkets, people can be seen
standing in line for hours, only to find out there is nothing left.
Looting has become common.

This is surveillance video showing people storming and ransacking a bakery
in Caracas because basics such as flour and rice have become impossible to
get.  Just yesterday, hundreds were arrested after ransacking dozens of
supermarkets.  Look at images of these supermarket shelves left empty.

Economic mismanagement made worse by a drop in oil production and oil
prices has driven the South American nation into crisis.  Now, there is
growing pressure on Venezuelan President Nicolas Maduro to allow a recall
vote on his presidency, something the national assembly wants but Maduro
has stopped.

I spoke with one of the leaders of the opposition and asked him if the vote
don`t happen, is a military coup possible?  He said, yes, but that`s not
what they want.

CARLOS VECCHIO, VENEZUELAN OPPOSITION MEMBER:  A military coup would be a
total disaster in Venezuela.  We don`t want to get to that point.  We`re in
a totally collapsed country right now, it`s not working.  If we don`t find
a solution quickly, I mean, any option could be possible.

CARUSO-CABRERA:  A growing chorus of leaders around the world are backing
the recall vote on Maduro.  U.S. Secretary of State John Kerry became the
latest to do so earlier this week.

JOHN KERRY, U.S. SECRETARY OF STATE:  Like all people of the Americas,
Venezuelans have the right to use constitutional mechanisms to express
their will in a peaceful and a Democratic manner.

CARUSO-CABRERA:  Many Wall Street hedge funds are closely watching the
situation in Venezuela because they own Venezuelan debt.  Thus far, the
government promises to pay it even though it`s clear it`s running out of
money.

For NIGHTLY BUSINESS REPORT, Michelle Caruso-Cabrera.

(END VIDEOTAPE)

HERERA:  Here in the U.S., the number of Americans filing for unemployment
benefits rose more than expected last week.  According to the Labor
Department, initial claims for state unemployment benefits increased 13,000
to 277,000.  Claims have been below the key 300,000 level for 67 straight
weeks.  That`s its longest streak since 1973.

Consumer prices climbed in May.  They were driven by rising energy costs
and biggest increase in rent in nine years.  The consumer price index which
measures what Americans pay for everything from clothing to cars increased
0.2 percent last month, making it the third straight monthly rise.

And home builders are feeling more optimistic.  A gauge of sentiment issued
by the National Association of Home Builders rose in June.  The report
showed that builders are feeling pretty good about the upcoming six months.
They are seeing better traffic and more committed buyers supported by
steady job gains and low mortgage rates.

Speaking of those low mortgage rates, Freddie Mac reports that the popular
30-year fixed rate mortgage is averaging 3.54 percent, down from the prior
week and the lowest level since May of 2013.

HERERA:  So what does all of this global uncertainty around the world mean
for the domestic economy and markets right here at home?

Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds, joins us
now.

Welcome.  It`s good to have you here again, Brian.

BRIAN JACOBSEN, WELLS FARGO FUNDS CHIEF PORTFOLIO STRATEGIST:  Thanks, Sue.

HERERA:  You know, it does seem as though the market has an awful lot on
its plate, especially when you look at what`s going on overseas.  But what
impact do you think, if any, all of this will have on the market and the
U.S. economy?

JACOBSEN:  I think that it`s a matter of your time frame here.  If we`re
talking about what might it mean for the market over the next week or so, I
think it`s very significant.  Today is a good illustration of that.  The
market basically turned around when it looked as though there might be some
sort of shift in the outcome for the Brexit vote.

The unfortunate killing of that member of parliament who was in support of
remaining by somebody who was in support of leaving the European Union may
have shifted the odds a little bit as far as what the outcome may be and it
was basically at that point that the market began to turn around.  So I
think that until the Brexit issue is resolved we`ll likely continue to see
some of this volatility.

After that, I`m actually a little bit more sanguine about what the outlook
is.  I think that corporate earnings in the United States are beginning to
turn positive for the first quarter, they were negative about 8 percent
year on year.  But for the second quarter, it`s looking a little bit
better.  So, it`s not perfect but things are getting better.

HERERA:  And I see from my notes that you think that the U.S. market may be
a beneficiary because of all the uncertainty overseas?

JACOBSEN:  It is and unfortunately when the markets are going down, it`s
about a relative game about where`s relative shelter here?  So, we`re not
insulated from the storm that`s taking place but European markets are down
6 percent, the U.S. markets were down 2 percent.

So, we`re a relative beneficiary as people were seeking safe havens in the
storm.

HERERA:  I notice that you also like Japan and cash, which we don`t
actually hear very often, the cash aspect of it.  Why that and why Japan?

JACOBSEN:  Yes, as far as the cash aspect, I think that cash management is
a really key component of any good financial plan.  It can help remind you
about why it is that you can be a patient investor, because investing does
require patience.  If you have about six months of spending in cash, it
allows you to ride out some of the volatility and take on a little bit more
risk in seeking return.

I like Japan mainly because it`s done so poorly.  I feel as though the Bank
of Japan has really done something that it shouldn`t have done, stand pat,
when the fed made it clear they could have eased.  Instead they did
nothing.  But the yen strengthens significantly.  I think the Ministry of
Finance will probably need to intervene to weaken the yen and the Japanese
market overall could begin to turn from this point.  So, just a lot of bad
stuff has already happened, maybe the worst is behind us.

HERERA:  On that note, optimistic note, Brian, good to see you.  Brian
Jacobsen at Wells Fargo Funds.

Well, China as you know plays a big role in the global economy.  And today,
the U.S. treasury secretary had a warning for the world`s second-largest
economy.  Secretary Lew is calling that country`s business practices unfair
and urges it not to weaken its currency.

(BEGIN VIDEO CLIP)

JACK LEW, TREASURY SECRETARY:  China still has work to do to achieve the
goal of creating the conditions for an orderly transition to a market-
determined exchange rate.  And this month`s S&ED, China committed to
continue to advance those reforms allowing for two-way flexibility in the
exchange rate.  China must demonstrate its actions not just its words, its
commitment to that two-way flexibility.

(END VIDEO CLIP)

HERERA:  The treasury secretary says that any reversion to old foreign
exchange policies to artificially boost exports would trigger tension.

Still ahead, Microsoft goes where no big-name corporation has gone before –
– into the marijuana industry.

(MUSIC)

HERERA:  Volkswagen says its next nine years will be driven by more
electric vehicles and a shift away from the constant quest to become the
world`s largest automaker.  It is all part of VW trying to plot a new path
even as it continues to wrestle with the diesel emissions scandal that is
far from resolved.

Phil LeBeau has more.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  VW is shifting gears
after a tumultuous year filled with scandal, billions in losses, and the
ouster of its long-time CEO Volkswagen`s current boss says the company has
learned from its mistakes.

MATTHIAS MULLER, VOLKSWAGEN CEO (through translator):  The current crisis
is a catalyst for us here.  At Volkswagen, doors have opened up.  Readiness
for change has grown considerably.

LEBEAU:  Muller laid out VW`s plan for how it will change between now and
2025.  First, more electric vehicles.  In fact, the company hopes to sell 2
million to 3 million annually by 2025.  Meanwhile, VW will push mobility
solutions like car-sharing and ride services.

Finally, there will be a focus on sustained profits.  But more importantly,
Volkswagen is no longer proclaiming it will become the world`s largest
automaker, a goal it embraced for years.

Critics blame that ambition as one reason VW executives lied about diesel
emissions rather than deal with an issue that could have slowed sales.

Volkswagen is still a long ways from getting past the diesel emissions
scandal.  In the next week, it is expected to finalize details for how
almost 600,000 Volkswagen owners will be compensated for having defective
diesel models.  After that, it will take months to settle those claims.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

HERERA:  A surge in sales in Oracle`s cloud business helped the company`s
quarterly results.  The business software maker earned 81 cents a share.
That was in line with estimates.  Revenue was slightly higher than
expectations, coming in at $10.5 billion, though that was 1 percent lower
than a year ago.  The results help shares rise initially in after-hours
trading.

Josh Lipton has more on Oracle`s quarter.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Six hundred and ninety
million dollars.  That was the big number in Oracle`s latest earnings
report.  It refers to the company`s cloud of businesses known as software
as a service and platform as a service.  More importantly, the company also
said bookings in Q4 were strong and that means Oracle could raise its
guidance for Q1 cloud revenue growth, now expected to be between 75 percent
and 80 percent.

Brad Reback of Stifel Nicolaus, an Oracle bull, says the results validate
this company`s transition.  Like other legacy I.T. vendors, Oracle is
moving as fast as it can toward a model where customers access its software
over the web as a subscription rather than buying and installing software
on their own servers.

For NIGHTLY BUSINESS REPORT, I`m Josh Lipton in San Francisco.

(END VIDEOTAPE)

HERERA:  Profit soars nearly 10 percent at Kroeger and that is where we
begin tonight`s “Market Focus.”

Results were better than expected, thanks to strong sales of wine and deli
meats.  But overall revenue at the grocery store chain wasn`t good enough
to top estimates.  Kroeger anticipates earnings for the year to come in at
the low end to midpoint of its previously issued guidance.  Kroeger shares
down a fraction to $35.47.

Rite Aid reports a disappointing quarter.  The drugstore chain posted worse
than expected profit and revenue as pharmacy reimbursement rates weighed on
results, something the CEO anticipates will continue into the near term.
In addition, Rite Aid still expects its merger with rival Walgreens to
close by the end of this year.  Shares of Rite Aid down just a tick to
$7.81.

Walmart is slashing jobs.  The world`s biggest retailer is expected to cut
as many as 1,500 accounting and invoice positions across 500 stores as it
looks to move its bookkeeping practices to its headquarters.  The company
also expects to add as much as a $60 billion in new sales over the next
three years.  Shares of Walmart up a fraction to $71.30.

Cavium which makes computer network chips will buy QLogic in a deal valued
at nearly $1.4 billion.  The merger is expected to increase the company`s
2017 earnings per share by 60 cents to 70 cents.  Cavium shares plunged
17.5 percent to $39.60.  QLogic shares surged 9 percent to $14.80.

Cosmetic company Revlon will acquire its rival Elizabeth Arden in an all-
cash deal for about $870 million.  Revlon said the merger will provide the
company with a significant presence across all major beauty channels.
Elizabeth Arden stock surged more than 49 percent in the extended session,
but ended the regular session down just a tick to $9.41.  Revlon rose in
after-hours trading but finished up marginally to $31.15.

Marijuana is going more mainstream.  Microsoft has become the first big
well-known company to partner with a firm that operates in the fast-growing
marijuana business.

Eamon Javers has been following the story from Washington and joins us now.

Good to see you, Eamon.

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Yes.  Hi, Sue.

HERERA:  So, Why is Microsoft making this move?

JAVERS:  Well, look, the marijuana industry is growing.  So many states
having legalized either medical marijuana or just plain old recreational
marijuana.  That means it`s a big business, but there are a lot of
companies out there having real trouble in terms of compliance because it`s
not legal on the federal level yet.

A lot of banks won`t touch the marijuana business.  And so, there`s an
operating space for companies that help the marijuana businesses deal with
compliance.  That`s the type of company that Microsoft is partnering with
here.  They`re partnering with a firm called Kind Financial which makes
software for marijuana businesses to help them stay in compliance with all
the state rules and regulations.

HERERA:  Do you think that Microsoft is the first of many or of other
companies that might do this?

JAVERS:  No doubt, no doubt.  There`s so much money to be made in this
marijuana industry as it begins to grow.  The expectation is that more and
more states will continue to legalize marijuana because of the massive
revenues that those states can receive in terms of tax payouts.  So, it`s
clear Microsoft is not going to be the last of these companies.

This deal, though, is just a software partnership but think of this as
going into the shallow end of the marijuana industry pool.  It`s software,
it deals with compliance and regulations.  This is not Microsoft coming up
with new bong designs or something like that.

HERERA:  Right.

JAVERS:  This is Microsoft doing tax compliance software.  That`s sort of
its government business sweet spot and they`re sticking to that for now.
All this is going to continue to expand.

HERERA:  So, does this mitigate any reputational risk that Microsoft might
incur in the because, you know, the legalization of marijuana on a state
level was controversial?

JAVERS:  Well, absolutely.  And look, for kind financial, think about the
small startup company based in Los Angeles.  This really validates their
business plan.  It validates the entire industry in a way to have a big,
giant American corporation like Microsoft come in and put their sort of
good government seal of approval on it.

It`s huge for the marijuana industry.  For Microsoft, you know, this was a
threshold that they wanted to cross eventually and now they`re doing it
deed.

HERERA:  Eamon, thanks as always.  Eamon Javers in Washington.

Coming up, money in the bank.  The newest perk a growing number of
companies are offering to attract the best workers.

(MUSIC)

HERERA:  Macy`s and its union avert a strike.  A tentative deal for a new
labor contract was reached avoiding what would have been the first strike
in about 40 years at the nation`s biggest department store.  One of the
issues was over the cost of health insurance coverage.  The union had also
been pushing for higher wages and changes to the retailers commissions
policy.  Details of the agreement have not yet been made available.

And while Macy`s averts a strike, Atlantic City workers are threatening
one.  Union workers at more than half of Atlantic City`s hotel casinos are
expected to authorize a strike during the busy July Fourth weekend.  If the
walkout extends into the summer, it could hurt the busy July through August
season as well, and in turn damage Atlantic City`s already-fragile
finances.

Now to the changing workplace.  It was once enough for companies to offer
employees benefits like 401(k), health insurance.  But now, many companies
are providing a new perk to attract the millennial generation that is
saddled with student debt.

Kayla Tausche has more.

(BEGIN VIDEOTAPE)

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Jennifer Hanson, an
HR executive at Boston money manager Fidelity, started noticing something
worrisome among employees last year.

JENNIFER HANSON, FIDELITY HEAD OF BENEFITS:  We really heard from both our
managers and our associates that student debt was a significant impediment
to their ability to move forward in life, whether it was buying their first
home or getting married, for one person, even dating.

TAUSCHE:  Over the next few months, Fidelity put together a plan to help,
giving employees up to $10,000 apiece with very few strings attached.

HANSON:  The only service requirement is they`ve been here for six months.

TAUSCHE:  Robert Garland is one of 6,000 employees that took them up on it,
still saddled with debt from undergrad and business school.

ROBERT GARLAND, FIDELITY EMPLOYEE:  That pretty much put me into $50,000
worth of debt.

TAUSCHE:  He found himself paying more towards that than his mortgage.
That`s not even counting his wife`s student loans.  Help paying it off is
becoming more than just a company perk, it`s priority.

GARLAND:  401(k) is really nice but I can tell you that I`ve accumulated a
lot of student debt and this one`s really important to me.

TAUSCHE:  There`s currently more student loan debt than credit card debt in
the U.S.  This year`s graduating class owes nearly $30,000 on average.
Experts say for job applicants, these benefits may be a deciding factor.

BRUCE ELLIOTT, SHRM COMPENSATION & BENEFITS:  If the salary is close to
comparable, maybe $1,000, $2,000, $5,000 apart, go with the company that`s
offering to help you pay off that student loan debt.  It`s a
differentiator.

TAUSCHE:  For now, only 4 percent of U.S. companies have these programs but
that`s growing.  And they vary in size.  But a survey by Nerd Wallet found
by saving employees $4,100 on average, they can pay off their loans three
years early.

ELLIOTT:  It is actually a fairly lucrative and fairly innovative benefit.
We haven`t seen anything like this before.

TAUSCHE:  For the Garland family, they`ll see financial freedom a year
sooner than expected.

GARLAND:  For the last five years we have been, with $1,300 a month, we
have paying off our past are.  With the extra money and the ability to pay
it down sooner, we can start thinking about our future.

TAUSCHE:  And that is money in the bank.

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in New York.

(END VIDEOTAPE)

HERERA:  Here`s another look at the day on Wall Street for you.  The Dow
climbed 92 points to 17,733.  At one point, it had been down nearly 170.
The NASDAQ added nearly 10.  And the S&P 500 gained 6.

And that will do it for us on NIGHTLY BUSINESS REPORT tonight.  I`m Sue
Herera.  Thanks for watching and have a great evening.  We`ll see you here
tomorrow.

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) 2016 CNBC, Inc.

 

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