Transcript: Nightly Business Report – February 17, 2017

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue
Herera.

Funded in part by —

(COMMERCIAL AD)

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Surprise offer. Kraft
(NYSE:KFT) Heinz proposed bid for Unilever (NYSE:UN) would create one of
the biggest corporate acquisitions in history. But it`s also raising a lot
of questions.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Big order. President
Trump suggests the government could buy more Boeing (NYSE:BA) planes and
the stock hits a new high.

HERERA: Coal country celebrates. The president follows through on his
promise to roll back regulations. But is it enough to get the ailing
industry back on its feet?

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Friday,
February 17th.

MATHISEN: Good evening, everybody.

Kraft (NYSE:KFT) Heinz is hungry for a deal, a big one, one worth more than
$140 billion. The food conglomerate, backed by billionaire Warren Buffett
and the Brazilian private equity firm 3G made a takeover offer for Unilever
(NYSE:UN) in what would be one of the biggest deals ever.

But Unilever (NYSE:UN) said hold the mayo and Kraft (NYSE:KFT) Heinz may
not take no for an answer. That may be why shares of both companies soared
double digits in trading today.

Sara Eisen explains why this may just be the beginning of a consumer food
saga.

(BEGIN VIDEOTAPE)

SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Kraft (NYSE:KFT) Heinz,
which itself was born out of an acquisition put together by Brazilian
private equity giant 3G and Warren Buffett just in 2015 is trying to
combine itself with the mega British-Dutch company Unilever (NYSE:UN).
Unilever (NYSE:UN) owns Dove soap, Axe deodorant, besides food brands like
Hellmann`s Mayo and Ben and Jerry`s.

And while it rejected this current proposal, Kraft (NYSE:KFT) says it still
looks forward to reaching an agreement on the terms of a transaction.

MICHAEL LAVERY, CLS: The real key is just the willingness of Unilever
(NYSE:UN) as a seller. Clearly stated that they don`t think there`s a
financial or strategic merit to the offer as it stands at the right price.
There`s something that looks like it might be likely to happen.

EISEN: What`s particularly interesting here — everyone expected Kraft
(NYSE:KFT) Heinz and 3G to pursue a new deal in food. Unilever (NYSE:UN)
is both a food, and household products company, about half and half.

And what the common thread in both of those industries is? Lack of growth.
Big food and household product companies have struggled to keep up with
changing consumer tastes and habits, eating healthy, changing the way they
buy basics. They`re going now online and to their mobile phones. Coupled
with a slowdown in emerging markets, which accounts for about 60 percent of
Unilever`s sales, the going has been tough for these big companies.

So, 3G`s playbook: swoop in, buy up the companies, and cut costs. We`re
talking major slashing of costs that boost profit, and often include job
cuts. What happens next? Some analysts say that the price of this offer
will go up, Kraft (NYSE:KFT) has until March 17th to announce a firm
intention to make a specific offer or walk away under British law. 3G is
pretty quiet about its strategy.

GEOFF COLVIN, FORTUNE: Maybe all they want is the food. The speculation,
which I think makes sense is they probably don`t want Dove soap and all the
personal care products.

EISEN: Either way, investors are certainly excited about the prospect.

For NIGHTLY BUSINESS REPORT, I`m Sara Eisen.

(END VIDEOTAPE)

HERERA: And as Sara just explained, 3G is known for its hard-driving
management and deep cost cuts. So, what`s happens when the Brazilian
private equity firm swoops in? What happens to workers and jobs?

“Fortune Magazine” wrote about exactly that, and you just saw Jeff Colvin.
Well, he rejoins us. He`s the writer of that article, senior editor at
large, and he joins us tonight from “Fortune”.

Good to see you, Jeff. Welcome back.

COLVIN: Hi, Sue. Thank you.

HERERA: You know, you said you anticipated that they would be making an
acquisition that was large but this one even surprised you.

COLVIN: That`s exactly right. This was totally predictable because it was
clear they had to make another acquisition. That`s how 3G companies grow.
They don`t grow organically, they grow by acquisitions. So, they had to
make a buy.

What was astounding was that no one on Wall Street nor I imagined they
would ever go after a target as big as Unilever (NYSE:UN).

MATHISEN: Do they really want, I think you sort of referenced this, do
they really want everything that comes with Unilever (NYSE:UN) — from Axe
deodorant to soaps and other things — or do they just want the food brand?

COLVIN: Well, they — first of all, they never announce stuff like this
and they don`t talk much to the press.

But I find it hard to believe that they really would want anything other
than the food. The whole history of 3G is food and beverage. Beer, Burger
King, Tim Horton`s, Kraft (NYSE:KFT) Heinz. It`s all food and beverage. I
don`t see them leaving that.

HERERA: You know, Jeff, it`s the political climate, though, for job cuts
and things like that is not favorable for 3G. Now, granted, it is a
Brazilian private equity firm, but what about the way they might have to do
this because their M.O. is to kind of come in, close plants, slash jobs,
cut costs?

COLVIN: That`s exactly right. And I`m sure that that`s the playbook they
would be following this time. It`s going to be a real problem because
they`ve done it in the United States, and mostly without trouble.

The environment in Europe is very different. Worker protections are far
greater. Unions are far stronger. They could have a problem trying to run
their playbook in Europe.

MATHISEN: So, Kraft (NYSE:KFT) Heinz is 3G on the one hand, it is also
Warren Buffett on the other, right?

COLVIN: Oh, yes. In fact, he owns more of Kraft (NYSE:KFT) Heinz than 3G
does.

MATHISEN: How active a driver do you think he would be in this kind of
acquisition? And as you point out, they have to do this because they`re
not growing otherwise.

COLVIN: That`s exactly right. Buffett is an important source of
financing. But he has made clear that he doesn`t want to run these
companies, and, in fact, he has said that 3G runs them far better than he
ever would. So, I think his role will probably be in the background as a
financier.

HERERA: Do you think that they can pull this off, Jeff? I mean they did
it, certainly, with beer. But the food business, as Sara pointed out in
her piece, is very different and consumer tastes are changing fairly
rapidly, as well.

COLVIN: Well, they are. I mean, the first question is, will they actually
be able to do the deal? It seems no one has ever stopped them from getting
what they wanted in the past. So, they are formidable. How they can
manage in the food business, as tastes are changing? Well, that`s what
they`re trying to adapt to.

HERERA: All right, Jeff. Thanks so much for spending time with us.

COLVIN: You bet.

HERERA: Jeff Colvin with “Fortune Magazine”.

MATHISEN: Well, Softbank is reportedly making a new attempt to merge
Sprint and T-Mobile. According to a “Reuters” report, Sprint`s majority
owner Softbank plans to approach T-Mobile`s majority owner Deutsche Telekom
about a get-together. Now, Softbank has to wait until the end of the FCC
spectrum auction in April. The Japanese multinational company first tried
to merge Sprint and T-Mobile back in 2014 but abandoned, the pursuit, on
regulatory concerns. The report sent shares of both T-mobile and Sprint
higher, as you see there.

HERERA: On Wall Street, the Dow inched higher just minutes before the bell
to extend its win streak to seven straight record closes. The upbeat
merger news and a climb in Boeing (NYSE:BA) shares ultimately helped offset
a decline in the energy sector. We`ll have more on that in just a moment.

The Dow Jones Industrial Average added four points to 20,624. The NASDAQ
was up 23, and the S&P 500 rose 3. For the week, the three major indexes
all reported gains that exceeded 1 percent.

MATHISEN: Boeing (NYSE:BA) was one of the top performing Dow stocks today.
This after the president praised the company at its South Carolina plant
and suggested that the government could buy more planes from the
corporation. It is the same plant where just days ago workers rejected
joining the Machinists Union.

Phil LeBeau has the story from Charleston, South Carolina.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Here in North
Charleston, South Carolina, President Trump spent more than an hour touring
the Boeing (NYSE:BA) plant, introducing the new Dreamliner, the 787-10, and
talking in front of about 6,000 Boeing (NYSE:BA) workers about their
future, about manufacturing in America, and about his pledge to bring even
more jobs into this country.

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: We want products made by our
workers, in our factories, stamped with those four magnificent words, “Made
in the USA”.

(CHEERS AND APPLAUSE)

LEBEAU: The 6,000 Boeing (NYSE:BA) workers who were here listening to
President Trump gave him several rousing applauses, as he was talking about
the importance of manufacturing in America. And when he ended his speech,
he said “God bless the United States of America, and God bless Boeing
(NYSE:BA)” — music to the ears of these workers.

UNIDENTIFIED MALE: It was really neat experience being able to hear what
he thinks about aircraft. It`s been a long time coming, and it`s just been
incredible.

UNIDENTIFIED FEMALE: I think it represents what South Carolina is looking,
especially with the union vote that didn`t go through. We`re working for
South Carolina, and for Boeing (NYSE:BA). We`re here to stay.

UNIDENTIFIED MALE: I love the fact that he`s looking out for America.

LEBEAU: For Boeing (NYSE:BA) CEO Dennis Muilenburg, this is the third time
that he has met with Donald Trump. Once at Trump Tower in New York, once
at Mar-a-Lago in Florida and today here in South Carolina, as Boeing
(NYSE:BA) rolled out its newest Dreamliner, the 787-10.

Phil LeBeau, NIGHTLY BUSINESS REPORT, North Charleston, South Carolina.

(END VIDEOTAPE)

HERERA: As we mentioned a bit earlier, energy shares weighed on the market
today. It tends to be a sector that stocks follow pretty closely.

And as Bob Pisani reports it`s not clear if the bulls are in control or the
bears.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The markets may be at
new highs, but one sector is showing signs and that`s big oil. The broad
markets drifting higher since the beginning of the year, but oil stocks
have been drifting lower. It`s not a one-day affair. It`s a trend. The
evidence is everywhere.

Chevron`s at a new low for the year. ExxonMobil (NYSE:XOM) is down nearly
10 percent. The oil and gas exploration and production ETF was weighted
towards U.S. producers down 5 percent for the year.

What`s happening? A reasonable conclusion is that there`s a valuation
problem for energy stocks. The markets are still discounting a
significantly higher price for oil and a lot of people doubt that that`s
happening.

How much higher? I don`t know. But a lot of people at the end of last
year were talking about oil in the $60 or even $70 in 2017. The oil bulls
insist demand is improving, they say OPEC`s agreement to cut production is
holding and all that`s true.

But look at the supply side. Traders have noted that more than 200
additional drilling rings have been added this year. U.S. production is
back up to 9 million barrels a day and oil, you know, it`s $53. It`s
exactly where it was two years ago. That`s right. Oil is $53 on this day
two years ago. It touched $60 briefly in June of 2015. It hasn`t come
close since.

What needs to happen? Well, in the short run we certainly need to see
inventory levels come down and that doesn`t look like it`s going to happen
either any time soon. You can see why the energy bulls are having a
tougher time of it recently.

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

(END VIDEOTAPE)

MATHISEN: Still ahead, Kraft (NYSE:KFT) may want to buy Unilever (NYSE:UN)
but there`s another consumer products company on market monitor says
investors may want to consider.

(MUSIC)

MATHISEN: Wells Fargo (NYSE:WFC) says it retail operations were, quote,
“relatively stable” in January. The bank has been reporting monthly
customer activity in its branch banking unit ever since its fake accounts
scandal was unearthed last fall. Thirty percent fewer checking accounts
were opened in January as compared with a year ago. But the number was up
from December.

HERERA: AT&T (NYSE:T) has expanded its unlimited data plan offerings.
Earlier in the week, Verizon (NYSE:VZ) did the same. Analysts say the move
to unlimited plans reflect an intensifying price war within the wireless
industry that could put pressure on companies to cut costs.

MATHISEN: The government backed mortgage companies Fannie Mae and Freddie
Mac are paying $10 billion in dividends to you and me, to the treasury.
Both companies earned billions of dollars of profit in the fourth quarter.
Now, new Treasury Secretary Steve Mnuchin said at his confirmation hearing
that Fannie and Freddie should not be left under government control without
a fix. But he also said he does not want to limit housing finance.

HERERA: The Consumer Financial Protection Bureau was established in the
aftermath of the financial crisis. And pretty much ever since, the banking
industry has been pushing for changes at the watchdog agency. But not
everybody agrees on how that should be altered.

Ylan Mui has the story for us from Washington.

Ylan, good to see you.

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hi, Sue.

HERERA: So, what does the CFBP actually do and why do the banks want to
change it?

MUI: The CFBP is America`s consumer watchdog agency. It`s an independent
agency established during the financial crisis, and most importantly, it`s
run by a single investor, and the president has limited power to remove
that director. Of course, banks don`t like that. They`ve been arguing for
a long time that the CFBP should be run by a five-member, bipartisan
commission. They say that will provide them more stability so that the
rules and regulations coming out of the CFBP don`t change according to the
whims of whoever might be the director of the agency.

So, they are looking for big changes to the structure of the CFBP.

MATHISEN: How about lawmakers? What kind of changes to that structure are
they proposing? What would the GOP like to see happen?

MUI: Well, one bill that we`ve heard about from Representative Jeb
Hensarling, who is chairman of the House Financial Services Committee would
make the CFBP`s single director removable at will by the president.
Essentially, the president would have the ability to fire this person
whenever the president decided was appropriate.

Other legislation out there that we`ve seen, Senator David Perdue has a
rule out there that would allow the CFBP to be in — to be funded through
Congress. Right now, the CFBP is funded through the Federal Reserve. So,
the Congress would have control of the purse strings.

And Senator Ted Cruz has a bill that would eliminate the CFBP altogether.
Just do away with the agency.

HERERA: That was what I was going to ask, is it possible that that might
happen? Does Mr. Cruz`s proposal have legs?

MUI: Well, it would take a legislative action for the CFBP to be entirely
eliminated. And you better believe that Democrats are not going to let
that happen without a fight. This is a signature piece of President
Obama`s financial reform changes that he made after the recession, and this
is also the brainchild of Senator Elizabeth Warren of Massachusetts. So,
she is not going to let this agency be killed quietly.

HERERA: All right. Thanks, Ylan. Have a great weekend.

MUI: You, too.

HERERA: Ylan Mui in Washington.

And to read more about America`s consumer watchdog, you can head to our
website, NBR.com.

MATHISEN: Well, General Mills (NYSE:GIS) slashes its full year guidance,
and that is where we begin tonight`s “Market Focus”.

The food giant said weak demand for yogurt and soup products in the U.S.
would cause sales for the year to come at the lower end of the company`s
previous guidance. The maker of Honey Nut Cheerios and Betty Crocker cake
mix has also reduced its profit expectations. Shares were off more than 3
percent to $59.23.

Sticking with food, Campbell`s Soup saw profit and sales fall more than
expected as higher promotional spending and weakness in the company`s fresh
food business hurt results. The world`s largest soup company did reaffirm
its outlook for the year, though. That wasn`t enough. Shares fell 6.5
percent to $58.48.

More food to talk about. J.M. Smucker`s said weak demand for its Folger`s
coffee and pet food products hurt results in the latest quarter. The maker
of Jif peanut butter missed revenue expectations, while its lower profit
was in line with expectations. Shares down 1 percent to $135.95.

HERERA: Well, despite facing soft market conditions, farming equipment
maker Deere said it saw sales improve in the latest quarter. The company
also reported better than expected earnings and said it`s beginning to see
signs of stabilization in key agricultural markets. The company also
raised its outlook for 2017, so shares were up 1 percent to $110.27.

The Justice Department has joined a whistle-blower lawsuit from 2011 that
alleges that the health insurer UnitedHealth Group (NYSE:UNH) overbilled
the government`s Medicare program by hundreds of millions of dollars, maybe
even billions of dollars. UnitedHealth Group (NYSE:UNH) said it rejects
the claim, and plans to contest them vigorously. Shares were off more than
3.5 percent to $157.62.

And health insurance — insurer Aetna (NYSE:AET) said it is doubling its
quarterly dividend to 50 cents per share. The annual yield is now more
than 1.5 percent. The company also said it would add $4 billion to its
existing share buyback program. Aetna (NYSE:AET) shares were down 3
percent to $125.27.

MATHISEN: And now to our market monitor who has names of stocks she says
could grow 15 percent over the next year or so, and also provide some nice
dividend income and get this, the last time she was on in July, she
recommended the following stocks. And they have all risen double digits,
some as much as 58 percent.

Mariann Montagne, portfolio manager at Gradient Investments.

Mariann, welcome. Let`s say we do it just like last time, all right?

MARIANN MONTAGNE, GRADIENT INVESTMENTS PORTFOLIO MANAGER: You know, I`m a
tough act to follow, Tyler.

MATHISEN: You are a tough. Well, follow yourself here.

Let`s start with British American Tobacco. Why do you like it?

MONTAGNE: Right. This is a company that is acquiring Reynolds American
(NYSE:RAI). And they can leverage off of Reynolds` portfolio around the
world with products like Newport (NASDAQ:NEWP), and the vapor e-cigarette.
It yields 3.5 percent. It`s valued far lower than any other consumer
staple stock, and particularly the other tobaccos.

HERERA: Next on the list, Invesco. You say it`s not like some of the
other banks that are out there. Why?

MONTAGNE: Yes, when you look at the financial sectors, the banks have done
extremely well since the election. And here`s a financials aim that`s not
a bank, it`s an asset manager and perhaps you know the exchange traded
funds that they offer, power shares. So, with the gains in the stock
market they gain assets under management, and their fees grow, and along
with the explosion, and exchange traded funds, we expect them to continue
to do very well. Again, nice dividend yields, about 3.2 percent. And a
multiple of 12 where the market is more like 17 times.

MATHISEN: You know the food business, Mariann, much in the news today.
With that proposed merger of Kraft (NYSE:KFT) and Unilever (NYSE:UN). Your
third pick, probably benefiting one way or another, from these discussions,
is Nestle. Why do you like it?

MONTAGNE: Well, Nestle offers a 3.5 percent field. So, again, we`re
looking toward 15 percent total return from these three names over the next
year or so. So, that`s a nice start with 3.5 percent yield. But their
focus has been on wellness and for the first time in about 100 years,
they`ve actually gone outside their own ranks to bring in a new CEO who
happens to be from the health care side of things. So, we expect to change
the portfolio toward a faster growing wellness type product, and those
happen to be higher margin products.

At the same time, they`ve embarked on a nice, substantial, three-year cost
reduction program. So, I think, you know, being where they are, global,
around the world, in Europe, it`s already I think they stand a better
chance at cutting costs than Unilever (NYSE:UN) might when 3G encounters
the European Commissions, and they try to take out the head count. I think
they`re up for a big battle in Europe.

HERERA: Very quickly, do you like the U.S. markets? Or it seems as though
you are favoring the international markets, maybe a little bit more.

MONTAGNE: Yes, the international market has underperformed the U.S.-backed
market on a one-year, three-year, five-year and ten-year basis. So we
think valuations are better overseas than in the U.S. we think the U.S. is
fairly valued, not fully valued. Still upside in the U.S. but more upside
overseas.

MATHISEN: All right, Mariann. Thank you again for being with us.
Congratulations on your very good picks last time. May you do it again.

HERERA: Thank you.

MONTAGNE: All righty.

HERERA: Coming up, did coal country just get a shot in the arm?

(BEGIN VIDEO CLIP)

CONTESSA BREWER, NIGHTLY BUSINESS REPORT CORRESPONDENT: I`m Contessa Brewer
in Powhatan Point, Ohio. This is coal country and coal country gives
President Trump a big thumb`s up for taking a first big step towards
fulfilling his campaign promise. That`s ahead on NIGHTLY BUSINESS REPORT.

(END VIDEO CLIP)

(MUSIC)

MATHISEN: Here`s a look at what to watch next week on Tuesday. Dow
components Home Depot (NYSE:HD) and Walmart report their earnings. Macy`s
(NYSE:M) does as well and it has seen seven straight quarters of falling
sales. Wednesday, the Federal Reserve releases the minutes of its latest
meeting. Investors will be looking for any hint on the timing of the next
rate hike. And on Friday, we`ll find out how many new homes were sold in
January and that`s what to watch next week.

HERERA: The Senate today confirmed the president`s pick to head the
Environmental Protection Agency. The votes for Scott Pruitt were mostly
down party lines. He is expected to waste little time when it comes to
scaling back high profile environmental regulations. Pruitt was one of
about two dozen mostly Republican state attorneys general who sued the
Obama administration over many of its environment rules.

MATHISEN: Coal country cheering today as President Trump takes a step
toward fulfilling a major campaign promise to bring back a declining
industry. As we told you yesterday, the president signed a law that
removes an environmental rule that coal miners saw as too broad, too
burdensome and illogical.

Contessa Brewer reports from Powhatan Point, Ohio.

(BEGIN VIDEOTAPE)

BREWER: Along this stretch of the Ohio River, the coal comes pouring in
around the clock. And yet in this county the unemployment rate is higher
than the national average, and families have been hurting with coal`s
decline.

MARYANN ANDERSON, RIVERSIDE RESTAURANT CUSTOMER: This town is nothing
compared to what it used to be. I mean, this used to be all stores,
grocery stores, clothing stores, everything.

BREWER: Retirees like Maryann Anderson are helping keep the riverside
restaurant afloat. Its customers used to be mainly coal miners.

J.B. HOLLIDAY, OHIO VALLEY TRANSLOADING COMPANY: The toughest part of my
job is having to sit across from a grown man and watch him crying because I
just, you know, had to tell him he was laid off.

BREWER: As harbor master at the Ohio Valley Transloading Company, J.B.
Holliday has seen his share of layoffs. Thirty thousand coal jobs have
disappeared in the last five years. And the industry was predicting many
more. It claims the stream protection rule finalized in December would
cost 281,000 jobs in a worst case scenario. The Nonpartisan Congressional
Research Service estimated it would cost 260 jobs per year, but would
create roughly as many.

TRUMP: It`s a major threat to your jobs, and we`re going to get rid of
that threat immediately.

BREWER: President Trump signed a law overturning the government`s
regulation fulfilling a campaign promise he made to bring back coal, big
league.

Environmentalists are furious about what the new law means for habitat and
ground water. The EPA, Department of the Interior, and Army Corps of
Engineers had worked for years to structure this stream protection rule to
prevent mining-related pollution and environmental damage.

That`s not the way coal leaders saw it.

ROBERT MURRAY, MURRAY ENERGY CORP. CEO: It was a deliberate attempt by the
radical people in the Obama administration to eliminate underground coal
mining.

BREWER: Experts say regulation is not the only challenge facing coal`s
revival. They say automation is among the biggest job killers. And coal`s
struggling to compete with cheap, natural gas.

HOLLIDAY: I don`t believe there`s anything wrong with, you know, more
forms of energy. Just don`t destroy a industry to make room for another
one. It doesn`t make sense. And quite frankly, this country cannot
survive without coal.

BREWER: This county certainly can`t. And they`re looking to President
Trump to chip away at a mountain of regulatory roadblocks, they see barring
the path to coal`s future success.

For NIGHTLY BUSINESS REPORT, I`m Contessa Brewer, in Powhatan Point, Ohio.

(END VIDEOTAPE)

HERERA: And that does it for NIGHTLY BUSINESS REPORT for tonight. I`m Sue
Herera. Thanks for joining us.

MATHISEN: And I`m Tyler Mathisen. Thanks from me, as well. Have a great
weekend, everybody, it`s a long one. See you on Monday.

END

Nightly Business Report transcripts and video are available on-line post
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