Transcript: Nightly Business Report – September 14, 2016

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Mega-merger. Bayer buys Monsanto in the biggest takeover of 2016, creating an agricultural conglomerate that could reshape the farming industry.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT: Hitting the road. If you’re in Pittsburgh and order an Uber car, you can now get one that drives itself.

HERERA: Teacher’s pet. Some educators have a new favorite way to raise funds for needed supplies. They go online.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, September 14th.

Good evening, everyone, and welcome.

It could be the biggest takeover of the year. Bayer is buying Monsanto. The price tag is $66 billion. But getting the deal done was not easy and won’t be.

Bayer came calling not once, not twice, but three times before Monsanto agreed to be acquired and each time the price tag increased. Today’s deal came in at $128 a share. And that sent shares of Monsanto slightly higher in the trading session.

Now, the takeover will create a conglomerate that operates in pharmaceuticals, health care products, pesticides. So, it still needs regulatory approval, and given that Monsanto is the world’s largest supplier of genetically modified seeds, the combined company would be an agricultural power house that could reshape the farming industry.

Hampton Pearson has details.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Americans seed and fertilizer giant, Monsanto, is about to be swallowed up by its German pharmaceutical rival, Bayer. The price, $66 billion, making it the biggest global takeover deal so far this year.

HUGH GRANT, MONSANTO CEO: We’ve been through 40 years now of depressed crop prices, ten-year low for corn, and five-year low for wheat. When you look at a deal like this, you can’t try and tame these things. You have to take — you have to take the longer view.

PEARSON: The combination creates a vast conglomerate, spanning pharmaceuticals, help products and pesticides. With annual revenue estimated at $26 billion, bigger by far than the closest rival, Switzerland’s Syngenta, a key selling point for Bayer’s CEO.

WERNER BAUMANN, BAYER AG CEO: This is going to enable both companies to combine their efforts early on to develop better integrated solutions for the pharmas rather than doing things sequentially.

PEARSON: Bayer shareholders don’t get to vote on the deal and there are antitrust concerns.

If regulators block the deal, Bayer must pay Monsanto a $2 billion breakup fee. The two firms hope to close the deal at the end of the 2017.

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

(END VIDEOTAPE)

HERERA: So what kind of impact might this mega deal have on farmers and the U.S. agricultural business?

Jonas Oxgaard joins us now to discuss that. He is senior U.S. chemicals analyst at Sanford Bernstein.

Welcome, Jonas. It’s nice to have you with us tonight.

Let’s start first of all with — I think you think that this might be good for perhaps one part. Or party in the deal, but not necessarily together.

JONAS OXGAARD, SANFORD BERNSTEIN SR. U.S. CHEMICALS ANALYST: Yes. It’s clearly good for Monsanto. They get a 44 percent premium on their undisturbed price. And this is a good premium, by any standard. Bayer on other hand, it’s hard to see how this is truly value-creating for them. It’s 5 to 6 percent return investment. It’s a big investment for fairly low returns.

MATHISEN: What do you see as the regulatory risk here?

OXGAARD: So, technical regulatory is actually not that bad. They don’t have a lot of truly overlapping sales. But the political risk, I think, is significantly higher. Farmers are clearly incensed about this.

We had — was it 250 farmers in Washington make their case in front of Vilsack and others. Grassley is holding hearings next week in the Senate on the consolidation of the space. And — yes, the farmers are upset. And I think the politicians, particularly the Corn Belt, where there will presumably be job cuts.

MATHISEN: Explain why the farmers are upset. Is it because there are increasingly fewer companies competing in the seed and pesticide market, not just because of this merger, but others as well?

OXGAARD: Yes, this is the fourth major deal in the space. And span of what is it, eight months? So, yes, farmers are clearly concerned about the reduction in competition. It doesn’t help that we still don’t know what the outcome of Dow Dupont is, even though we think that’s going to pass approval. We don’t know what they’re going to have to divest.

So, at this point, I think people assume that everything will stay consolidated.

HERERA: It’s also coming at a time when agricultural prices are down. And one of the arguments that the companies are making is that it will boost prices. Do you see that this deal significantly increasing prices, or just marginally?

OXGAARD: Well, I mean, farmer net income is down, because corn prices are down, or crop prices are down. But the farmer input cost has not gone down. So, seed pricing has been relatively stable. What farmers are concerned about is seed pricing will go up. So, seed pricing has practically doubled in the last ten years and they’re going to continue if the competition is less. Corn prices by itself don’t really get impacted.

MATHISEN: Why do you think the stock price on Monsanto is where it is today when the deal price is $128 a share? I think we had it at $106.

OXGAARD: Yes, the stock prices have barely moved. I think investors do see the fairly hefty regulatory concern or political concern. If you take a 50 percent probability of $128 and 50 percent probability of going back to $90, you end up with roughly 106.

HERERA: There you go.

MATHISEN: Easy as math.

HERERA: Thanks, Jonas. We appreciate it.

Jonas Oxgaard with Sanford Bernstein.

Ty?

MATHISEN: Well, stocks took a breather from the volatile today. They closed mostly lower as oil dropped and energy shares weighed on them. The Dow Jones Industrial Average fell nearly 32 points to 18,034. The NASDAQ added 18, which was helped by a 3.5 percent rise in Apple. The S&P 500 was down very slightly, a point and a quarter.

As for oil, prices there fell about 3 percent for a second straight day after reports showed a large build in petroleum products.

HERERA: We’ve also seen a recent rise in treasury yields. And that is not sitting well with the stock market. In fact, the equities seem to have become unusually sensitive to small changes in the bond market.

Mike Santoli explains why.

(BEGIN VIDEOTAPE)

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: On the surface, the recent rise in global bond yields might seem like a good thing for stocks. Don’t rising yields mean the economy is improving and investors are willing to take on more risk?

In one sense, this is true. And yields are still quite low, of course, with the ten-year treasury well below 2 percent. A level that has been fine for the stock market in the recent past. It is a pullback in equity since last week shows U.S. stocks are for now acutely sensitive to an abrupt selloff in bonds which lifts their yields.

For one thing, investors have piled into sectors who’s main appeal is dividend income, making these stocks less appealing as yields on safer government bonds go up. For of these dividend sectors — utilities, telecom, consumer staples and real estate, together now make up 18 percent of the S&P 500 index. The financial sector, which seems to benefit from higher rates, is only 13 percent of the index, once real estate stocks are excluded.

Another factor, rising yields add pressure to the stock market’s overall valuation. One of the key arguments for stocks in recent years was that low bond yields help justify stocks somewhat elevated values in the eighth year of a bull market. With the recent rise in the ten-year treasury yield sort of 1.7 percent, on this basis, stocks appear less attractive than they have on average over the past five and ten years.

There’s no guarantee that yields will indeed keep rising, of course. And in the past, the stock market has eventually been able to absorb higher bond rates as long as they’re accompanied by a stronger economy and better corporate earnings growth. But until investors gain confidence that the economy and profit trends are getting better, stocks might well remain sensitive to each twitch of the bond market.

For NIGHTLY BUSINESS REPORT, I’m Mike Santoli at the New York Stock Exchange.

(END VIDEOTAPE)

HERERA: Meantime, the price of foreign imports into the U.S. fell in August for the first time in six months. The Labor Department says declining oil and food costs weighed down import prices which decreased 0.2 percent. That decline was a tad steeper than expected. Import prices have been constrained by a strong dollar and cheap crude. And exports say this report points to tame inflation environment.

MATHISEN: Last night, we told that American household incomes were on the rise for the first time in eight years, according to the Census Bureau’s annual report on income and poverty. The median income rose more than 5 percent to $56,000 per household.

Joining us now to discuss this and other key findings in the report is Trudi Renwick. She’s assistant division chief at the Census Bureau.

Ms. Renwick, welcome. Good to have you with us.

This was by any stretch a very encouraging report. The gains were broad, I would say, across not just ethnic groups, but regions, as well, right?

TRUDI RENWICK, CENSUS BUREAU ASSISTANT DIVISION CHIEF: Yes, indeed. Yes, indeed.

The income was up for all four regions of the United States. Income was up for almost every race group. It was up for Hispanics, up for men, up for women. Really, a very, very broad based improvement in median household income. And —

HERERA: Trudi, you know, there has been a lot of talk about the issue of income inequality. As a matter of fact, it’s present in the campaign right now. But it was an issue well before the presidential race started. Did we see some improvement on that front? Did it narrow?

RENWICK: Well, in the metrics that we used to measure income inequality, we did not see a year-to-year change in income inequality between last year and this year. But we did see that there was an increase in income at the middle. That’s what the median income measures and we saw an increase in income at the bottom, where we saw 1.2 percentage point drop in the poverty rate.

So, we did see good signs in terms of future narrowing of that income inequality. But between last year and this year, there was nothing that we could measure.

MATHISEN: Good news is good news. But tell me how today’s incomes compare on an inflation-adjusted basis with incomes right before the recession or looking back, say, 20 years.

RENWICK: OK, well — the — when we compared the incomes back to 2007, we see that we have not quite gotten back to the levels we were in 2007. And we have not gotten back to the peak income that we had in 1999/2000. What we do see is that we have had the — one of the highest year-to-year increases in median household income since we started measuring it. And the last time we had an increase this big was 1998.

HERERA: Did I read some of the statistics correctly in that, most of the improvements are in more metropolitan areas? If you get out of the cities, into other parts of the country, the advances were not — were not spreading. They were not as extreme.

RENWICK: Well, we saw increases in metropolitan statistical areas, both in principle cities and in what most people would call the suburbs, which would be in metropolitan areas, but outside the principle cities. It’s very small part of the population that lives outside those metropolitan statistical areas. And for them, we saw their income was flat and their poverty was flat. So, we did not see an increase in income nor decrease in poverty.

MATHISEN: I’m going to ask you a quick answer to a tough question. Why have incomes stalled?

RENWICK: Well, incomes didn’t stall this year. They increased by 5.2 —

MATHISEN: No, but I mean, compared with 2007 or back in 1999. Why are we not higher than we are?

RENWICK: Well, I think that the Great Recession was a really tremendous blow to incomes. We never recovered. As I said, the peak incomes were 1999/2000, and with the recovery of the early 2000s, we never recovered back to the 1999 levels, and then we were hit with the Great Recession.

MATHISEN: Right.

RENWICK: And so, we saw big declines. But the news yesterday was pretty good in terms that —

MATHISEN: Certainly was.

RENWICK: — we’re well on the road of getting back towards that.

MATHISEN: Ms. Renwick, thank you very much.

Trudi Renwick with the Census Bureau.

HERERA: Still ahead, on the road. Why requesting a ride from Uber is taking on a whole new meaning in the Steel City?

(MUSIC)

MATHISEN: Federal prosecutors are reportedly investigating Wells Fargo, according to Dow Jones. U.S. Attorneys Offices in New York and California recently sent a subpoena to the bank as part of their probe into its sales practices. The investigation is still in its early stages and could potentially lead to a criminal inquiry.

As we have been reporting, Wells Fargo was hit with a fine after thousands of its employees were caught setting up accounts customers didn’t ask for. This, the report came out late this afternoon, and that sent the stock of Wells Fargo down, as you see there.

HERERA: Ford plans to move all of the company’s small car production to Mexico from the U.S. Ford’s CEO confirmed the expected move and said the lower wages in Mexico will help increase profits. The automaker’s Michigan assembly plant which currently makes the small cars will likely shift production to larger, more profitable vehicles.

Republican presidential candidate, Donald Trump, has criticized Ford in the past for moving jobs to Mexico. But the company has said it needs to make solid business decisions.

MATHISEN: Ford also expects profit to drop next year. This as it increases spending and invests more aggressively in technology, like electric cars, ride sharing and the development of autonomous vehicles. Ford’s chief financial officer also said the company is seeing headwinds from commodity costs.

But after the profit dip next year, Ford does expect to see an improvement in its bottom line. Shares of Ford today off about 2 percent.

HERERA: Uber is now giving some customers rides in self-driving cars. It’s happening in Pittsburgh, where the ride-sharing giant is publicly testing how well autonomous drive Uber cars perform.

Phil LeBeau has more from the Steel City.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Is this the future of ride-sharing? Uber says it could be. That’s why it’s operating a handful of self-driving cars in Pittsburgh.

ANTHONY LEVANDOWSKI, UBER AUTONOMOUS DRIVE PROGRAM: I think the public is going to be delighted. I expect this is going to be kind of an interesting experience. You call on Uber and you’re used to a specific experience and now you have kind of a future coming to you a little bit early.

LEBEAU: Customers who order an Uber in this city will be offered a chance to ride in a self-driving car for free. Uber will have a driver and engineer in the front seat, monitoring the car’s performance and standing by to take over if something goes wrong.

Meanwhile, there’s a screen in the back seat so customers can track their ride, and see what the car sees.

Like other autonomous drive vehicles, the Uber autonomous drive vehicle lets you know, or lets the driver know when the car is ready to take over. Hit this button, and now the car will control itself and I think we’re going to turn at this intersection here. That was the car entirely.

Why is Uber modifying Ford Fusions and Volvo XC-90s with 20 cameras and seven lasers when the company already dominates the ride-share business in the U.S. by paying real people to drive their own cars?

Because several automakers and tech firms are testing or plan to roll out their own self-driving ride share programs. So, when the day comes that autonomous drive cars start to take off, Uber will have a fleet ready to roll.

ARUN KUMAR, ALIX PARTNERS: There was a conscious effort to drive these first to market, because the business opportunity is pretty strong for them

LEBEAU: But are people in Pittsburgh ready for self-driven Uber cars?

UNIDENTIFIED FEMALE: I would definitely feel comfortable riding in a self-driving car. I trust it over human drivers.

UNIDENTIFIED FEMALE: I just took an Uber and they were asking me if I would take one and I said no.

UNIDENTIFIED MALE: I don’t think the average person would be okay with no one behind the wheel, you know what I mean? But I think it would be something good for the city.

LEBEAU: Pittsburgh will soon find out if these strange-looking cars become a normal part of getting around the Steel City.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Pittsburgh.

(END VIDEOTAPE)

MATHISEN: Sarepta Therapeutics experimental drug for treating Duchenne muscular dystrophy gets new hope and that is where we begin tonight’s “Market Focus”.

An outspoken critic of the biotech company’s treatment for the disease has left the Food and Drug Administration. Dr. Ronald Farkas led a review of the drug and criticized its effectiveness, resulting in the FDA delaying its decision on that medicine. There is currently no approved treatment for the disease. Sarepta shares soared 26 percent to $32.45.

The drug giant Allergan said it will acquire Vitae Pharmaceuticals for nearly $640 million. The deal will let Allergan expand its portfolio of dermatology treatments. Shares of Allergan up about 2 percent on the day at $244.81. The real action, though, was over at Vitae which saw its shares skyrocket, more than doubling to $20.85.

Going the other way, Ruby Tuesday said yesterday its CEO stepped down after the restaurant chain’s board reportedly called for a resignation. According to “The Wall Street Journal”, the decision was tied to faltering sales and weakness in the dining industry. Separately, the coy gave disappointing preliminary results for the current quarter. Ruby Tuesday down 7.5 percent to $2.82.

HERERA: Cracker Barrel saw its profit and sales rise as higher menu prices help to lift results. But the restaurant chain issued weaker than expected guidance for not just the current quarter, but also the full year. As a result, shares fell 7 percent to $139.98.

Boeing warned it may make additional production cuts to its line of 777 airliners if demand doesn’t pick up. The company CEO said a potential slow down in manufacturing would make it more difficult for the company to reach its financial goals. Boeing down a fraction to $127.67.

MATHISEN: Children are back in school and that means fund-raisers, bake sales, car washes soon going to follow to help pay for needed supplies. But increasingly, teachers are going online to raise funds to stock their classrooms with more than just extra notebooks and pencils.

Aditi Roy reports from Union City, California.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: Come in and have a seat.

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT: The students in Jeremy Taylor’s fifth grade class in Union City, California, are going high-tech, using tablets to learn lessons and writing computer codes to program this digital ball to move.

Taylor paid for these gadgets the through crowdfunding, raising money on sites like gofundme.com and donorschoose.org.

JEREMY TAYLOR, SEARLES ELEMENTARY SCHOOL TEACHER: I can dream bigger now and not be limited by the textbooks or what has already been decided to be in the classroom. I can go, oh, a 3-D printer? Oh, interesting. Maybe, what would that look like in the classroom? And it really has changed the dynamic of what the kids see as possible.

ROY: As student across the country go back to school, teachers are increasingly turning to crowdfunding to pay for classroom expenses. Teachers create a campaign online for supplies, technology needs, even field trips. Then set a dollar goal that people can contribute towards. And the sites take a small percentage or fee from the donations.

Donorschoose.org which focuses solely on education projects says it raised more than $100 million in its last fiscal year, a record, and $33 million in just the last two months alone.

Gofundme.com, a general crowdfunding site, reports education is its fastest growing category, raising $60 million in the last 12 months.

TAYLOR: It’s more efficient with — I can get an idea, I can read something and get an idea. And have it in the classroom within a month, instead of waiting for a district approval, seeing if the budget has enough money. But to really be almost more cutting edge for the students.

ROY: Students aren’t the only ones benefitting from these campaigns. Nearly all teachers pay out of pocket for at least some classroom expenses. According to GoFundMe’s data. These crowdfunding campaigns help ease that financial burden for teachers and school districts, especially ones that are cash-strapped.

TAYLOR: I’m not burdened by — we don’t have enough money for this. I’m not burdened by we don’t — we don’t — we already decided on this tack, even though it doesn’t work as well for your class, it’s dreaming big. I can dream much bigger now.

ROY: Donorschoose.org also says it’s partnering with companies like Chevron, which is donating a portion of gas sales in select markets of schools and also Target, which is giving away up to $5 million to help support kid-inspired public school projects.

For NIGHTLY BUSINESS REPORT, I’m Aditi Roy in Union City, California.

(END VIDEOTAPE)

MATHISEN: Coming up, right for disruption. The way companies want to change the way you get in shape.

(MUSIC)

HERERA: UPS expects to hire the same number of holiday employees this year as it did last, about 95,000 workers. It’s another sign that seasonal hiring will remain flat. Earlier this week, Target said it was planning on hiring 70,000 seasonal workers, also the same number as in 2015.

MATHISEN: Workers are employer-based health care insurance are seeing their up-front health costs rise. This as more employees move into high deductible plans. According to an annual survey by the nonprofit, Kaiser Family Foundation, just over half of employees this year have coverage with a deductible of at least $1,000. Higher deductibles in most cases means lower premiums. The study found that premiums rose just modestly, but still outpaced the rate of inflation.

HERERA: No industry, these days, is safe from disruption. Not even the fitness business. A number of startups are using technology to shake things up, and change everything from the way we work out to the devices we use to move our bodies.

Diana Olick highlights a few of them from an industry leadership conference in Denver.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: From video games to apps, the common thread in fitness disruption is technology and ingenuity.

ROB QUINN, SYMGYM CEO: We wanted something you could have fun with while you’re getting workout.

OLICK: SymGym is one of five finalists competing for top disrupter at the Sport and Fitness Industry Association Conference in Denver, an interactive weight-based full body video game console that its CEO hopes to put in SymGym Studios across the nation.

QUINN: You’re controlling the video game. So, you run, punch, jump and you shoot. Stomp.

OLICK: SymGym is competing against hookit, a technology platform that tracks and values athletic sponsorships on social and digital media.

SCOTT TILTON, HOOKIT CEO: We’ll track every single post that an athlete makes to social and digital media and we analyze it for brand value. So, look for hashtags and mentions of a brand.

OLICK: Hookit’s technology was able to show that soccer great Cristiano Ronaldo, who had more than 200 million social media followers, is actually underpaid, given the value of his following.

TILTON: One-point-two billion engagements. And, you know, which is more than the entire NFL league combined.

OLICK: Hookit’s growing client list includes the Lakers, Cavaliers, USTA and GoPro.

But disruption doesn’t just happen inside or online. Taking the elliptical outside has given one company huge grow.

BRYAN PATE, ELLIPTIGO CEO: We’re somewhere between pure fitness like the indoor elliptical trainer and cycling.

OLICK: Former triathlete and marine, Bryan Pate, loved running but an injury ended that. He invented the Elliptigo six years ago as a no-impact alternative. After launching a lower priced model this year, Elliptigo sales are up 50 percent.

PATE: We do have a lot of Olympians and professional athletes that use it. But it’s really something for anybody who wants to get that running-like workout which just doesn’t want to deal with the pounding of running.

OLICK: The company is making great strides, both on social media and with more than 17,000 sold on roads and trails around the world.

For NIGHTLY BUSINESS REPORT, I’m Diana Olick in Denver.

(END VIDEOTAPE)

MATHISEN: That does look harder.

HERERA: Not that easy. I’ve done it.

MATHISEN: Yes. Oh, boy. Wow.

HERERA: That does it for NIGHTLY BUSINESS REPORT tonight. I’m Sue Herera. Thanks for joining us.

MATHISEN: And thanks for me, as well. I’m Tyler Mathisen. Have a great evening, everybody. We’ll see you 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) 2016 CNBC, Inc.

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