Transcript: Nightly Business Report – July 12, 2018


government is going back after AT&T`s acquisition of Time Warner
(NYSE:TWX), putting the $86 billion dollar deal back in the crosshairs.

Broadcom (NASDAQ:BRCM) goes after a software company and many are wondering

GRIFFETH: Great expectations. Banks get ready to report earnings, but
will the results end the slump in that sector?

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this
very busy Thursday, July the 12th.

HERERA: Good evening, everyone. Buckle (NYSE:BKE) up, there`s a lot of
news tonight.

A blockbuster appeal follows a blockbuster deal. The Justice Department is
going back after AT&T`s acquisition of Time Warner (NYSE:TWX), appealing a
judge`s ruling last month that allowed the merger to proceed. The $86
billion deal was closed a short time later, but it could now face another
round of legal proceedings. Shares of AT&T (NYSE:T) came under pressure
initially, lowering after-hours trading.

Julia Boorstin is covering the story for us from Sun Valley tonight.

Good to see you, Julia.

I mean, basically, did anybody see this coming?

saw this coming. It`s particularly shocking because it`s been a month
since Judge Leon gave his pretty sweeping decision in favor of this deal,
and in favor of this type of deal, really eliminating any kind of question
about whether it would be appealed especially because — not eliminating a
question by whether it be appealed, but the real surprise, Sue, is that the
Justice Department decided not to seek an emergency stay.

So, in the past month, these two companies have moved forward with their
combination. So, this appeal comes a month later and it`s definitely a

GRIFFETH: They haven`t revealed what the grounds they are that they`re
basing the appeal on. But what did AT&T (NYSE:T) say? Have they responded

BOORSTIN: AT&T (NYSE:T) responding, saying the court`s decision could
hardly have been more thorough, fact-based, and well-reasoned. While the
losing party and litigation always has the right to appeal if it wishes, we
are surprised that the DOJ has chosen to do so under these circumstances.
We are ready to defend the court`s decision of the D.C. Circuit Court of

And, Bill, you`re right. We don`t have any particular details on the
grounds of the appeal, but we would assume it`s some facet of the original
grounds of the suit to block the case, which is antitrust ground. So,
there were different pieces of their antitrust argument, but Judge Leon did
rule, saying that the grounds put forward by the DOJ in their lawsuit
didn`t really hold in this circumstance.

GRIFFETH: In the meantime, there have been other deal activity in the
media business since this was approved. In fact some of it was predicated
on the AT&T (NYSE:T)/Time Warner (NYSE:TWX) deal being approved. I think
of Comcast (NASDAQ:CMCSA) (NYSE:CCS) bid for parts of Fox. So, what
happens now do you think?

BOORSTIN: Well, that`s exactly right. Comcast (NASDAQ:CMCSA) (NYSE:CCS)
made its bid for those Fox Entertainment assets that Disney (NYSE:DIS) had
already bid for as soon as we heard the ruling on this deal, the judge`s
decision on this AT&T (NYSE:T)/Time Warner (NYSE:TWX) deal. And they felt
confident moving forward with their bid for Fox`s assets because the
judge`s decision was so definitive and comprehensive, they felt that this
indicated that Comcast (NASDAQ:CMCSA) (NYSE:CCS) would have no problem
gaining regulatory approval.

Now, it`s worth noting that Disney (NYSE:DIS) has already gained regulatory
approval for its bid for Fox. So, we`ll see if this impacts Comcast
(NASDAQ:CMCSA) (NYSE:CCS) decision about whether or not to go back and make
yet another bid.

HERERA: Right. A lot of balls in the air certainly.

Julia Boorstin, thanks for covering it for us, live from Sun Valley.


GRIFFETH: Elsewhere, the Justice Department apparently is not going to
challenge CBS`s acquisition of Aetna (NYSE:AET). Remember back in December,
the drugstore chain said it would buy the insurer for $69 billion in a deal
that is designed to reshape the healthcare business. Well, today`s report
sent shares of both Aetna (NYSE:AET) and CVS (NYSE:CVS) higher.

Meg Tirrell takes a look at what the combined company might look like.


Aetna (NYSE:AET) announced their plan $69 billion dollar merger in
December, but a key question for the deal closing has been antitrust
clearance, though the two companies businesses don`t significantly overlap,
CVS (NYSE:CVS) as a retail pharmacy and owns a drug benefit manager, while
Aetna (NYSE:AET) is a health insurer, they do have some areas of direct
competition, specifically in the sale of drug plans to Medicare

But the combination would create a broader company that captures more of
what consumers spend on health care. CVS (NYSE:CVS) CEO Larry Merlo has
emphasized Aetna`s data and analytics combined with CVS`s interaction with
patients and customers, and says more locations will offer new health

CVS (NYSE:CVS) already has 1,100-minute clinic walk-in clinics, as well as
9,700 CVS (NYSE:CVS) pharmacy locations. One concern around the deal
though is whether it could limit patients` options for where to fill their
prescriptions or get care. And those shares of both companies rose on
reports of potential regulatory approval of the deal, Aetna (NYSE:AET)
shares aren`t yet trading as high as CBS`s offer, valued at around $202 a
share. That implies investors aren`t yet convinced it`s a done deal.

For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell in the U.K.


HERERA: In the U.K., Fox got approval to buy Sky. The green light removes
the last hurdle for Fox as it competes with Comcast (NASDAQ:CMCSA)
(NYSE:CCS) for the British broadcaster. The approval came after a long
regulatory review. Last night, we reported that Fox sweetened its offer
for Sky with Comcast (NASDAQ:CMCSA) (NYSE:CCS) following just hours later
with a higher offer.

GRIFFETH: Now, the other big deal news of the day was Broadcom`s nearly
billion dollar acquisition of software companies CA (NASDAQ:CA)
Technologies. This takeover was not expected at all because it takes the
chip manufacturer in an entirely new direction. And that may be why shares
of Broadcom (NASDAQ:BRCM) fell nearly 14 percent today as investors
struggled to understand the rationale behind this purchase. Meanwhile, CA
(NASDAQ:CA) shares soared by 18 percent.

Aditi Roy has more now on this rather head-scratching get-together.


Wall Street analysts. Reaction was swift as analysts questioned why a
semiconductor company is buying a software firm.

ROMIT SHAH, NOMURA: This has been their playbook for the last seven, eight
years. But, you know, that`s not what I think investors want if you go —
just to put things in context, if you go back about a year ago, Broadcom
(NASDAQ:BRCM) tried to buy Toshiba`s memory business, foreign business very
cyclical, then they went after Qualcomm (NASDAQ:QCOM) very aggressively, so
much so they actually re-domicile to the U.S. to make that deal happen.
That didn`t go through.

And now, they`re buying a software company and I just think it`s — what
you`re seeing today is that, you know, this — the straw that broke the
camel`s back.

ROY: Credit Suisse`s note titled “scratching my aching head” said: We are
left a bit perplexed and expect investors will be as well.

Nomura`s analyst writing: This deal runs completely against the investment
narrative that management has been articulating since their attempt to buy
Qualcomm (NASDAQ:QCOM). That $117 billion dollar bid for Qualcomm
(NASDAQ:QCOM) was obstructed by the Trump administration, which cited
national security concerns, since Broadcom (NASDAQ:BRCM) was then
headquartered in Singapore. In April, Broadcom (NASDAQ:BRCM) moved its
headquarters to San Jose, California.

Despite the move to the U.S., some analysts say the deal could still face
regulatory scrutiny.

Despite those potential hurdles, analysts at Jefferies are bullish on the
union, arguing that while the deal is a stretch from Broadcom`s core
business, pointing out that it is still consistent with the chipmaker`s
strategy of acquiring out of favor market leaders with high cost

Analyst at Centrist also pointed out that only two out of Broadcom`s last
five acquisitions were semiconductor companies, two were involved in
communications equipment and one worked with enterprise storage.

For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, San Francisco.


HERERA: On Wall Street, the Nasdaq closed at a record, as tech stocks
rallied and the broader market bounced back from yesterday`s losses. The
Dow Jones Industrial Average advanced 224 points to 24,924. The Nasdaq was
up 107, Amazon (NASDAQ:AMZN) and Facebook (NASDAQ:FB) closed at all-time
highs and the S&P 500 gained 24.

GRIFFETH: To the economy now where we learned today that consumer prices
rose at their fastest pace in six years. In the twelve months ended in
June, the consumer price index increased by 2.9 percent, the biggest annual
gain we`ve seen since early 2012. Month over month, the index edged up by
0.1 percent as gas prices increases moderated and apparel prices fell. And
for second straight month, the annual inflation rate offset average hourly
wage gains.

HERERA: So, with inflation on the rise, we wanted to spend a few minutes
on what you should do to inflation-proof your investment portfolio. We`ve
been talking about it for a couple days now. We tackled it last night.

And tonight, Chris Cordaro joins us. He is the chief investment officer at

Good to have you back.

GRIFFETH: Welcome back.


HERERA: It`s been a while since we`ve had to think about inflation
proofing our portfolio, right? It`s back.

CORDARO: Yes, it`s been a long time. And it is back in and certainly the
inflation just increasing naturally, but also the threats of a trade war
have — you know, the tariffs will just increase prices and if we get less
global and if we have to rely just on U.S. manufacturing, that will put
wage pressure on it. So, inflation is our real concern going forward.

GRIFFETH: Now we asked what kind of stocks you would look for to
inflation-proof your portfolio? A couple of them seemed offensive here in
the energy sector and in the banking sector, for example.

CORDARO: Sure. So, the — in the energy sector, Kinder Morgan which is a
pipeline company. So, that`s — that`s what we`re going to — we`re going
to still need to in heat our homes, energy — and we`ll still need power
plants. And so, that`s a great defensive stock.

Bank of America (NYSE:BAC), financial — I think if inflation increases,
the Fed will need to keep increasing interest rates. The Fed has two
mandates, inflation and employment. So, if inflation starts getting more
out of control, we`ll see the Fed increasing rates more. That`ll turn into
profits for the bank and that I think is a good play.

HERERA: Before we go to the stocks to avoid, the last one on the list
there was Google (NASDAQ:GOOG), and you say it`s because it`s basically
tariff proof.

CORDARO: Exactly. You know, the Google (NASDAQ:GOOG) is selling
advertisements information and so, they can`t — you can`t place it tariffs
on that. And it`s — and also the other part of it too is Google
(NASDAQ:GOOG) doesn`t do a lot of business in China. So, it`s a good way
to stay away from China as well.

GRIFFETH: So, the stocks to avoid. I`m surprised — now you got Nvidia.
You have Tesla, which I think is interesting. But Amazon (NASDAQ:AMZN).

Why Amazon (NASDAQ:AMZN)?

CORDARO: So, I was — what I`m looking for is I`m looking for it in all
three stocks, stocks that are selling at very rich valuations, and have a
lot of exposure to China. That`s where I — that`s where I see the biggest
risk is.

I think inflation heats up because of a trade war and so — and anytime you
have a little bit of disappointing news in an all-star stock like an Amazon
(NASDAQ:AMZN) or a Tesla, you`re going to see likely a very big decline.

HERERA: Chris, great to have you here.

CORDARO: Thanks for having me.

HERERA: Chris Cordaro joining us tonight with RegentAtlantic.

GRIFFETH: Time to take a look now at some of today`s upgrades and

And we begin with Netflix (NASDAQ:NFLX), which was downgraded to neutral
from buy at UBS. The analysts there cited the stocks valuation following a
35 percent run-up since first quarter earnings were released. Price target
now, $425. That stock fell one percent to $413.50.

Amazon`s price target was raised to $2,000 a share over at Canaccord
Genuity. The analyst says that Amazon (NASDAQ:AMZN) has the most robust
and durable growth outlook right now among the group of so-called FANG
stocks. Those include Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Netflix
(NASDAQ:NFLX) and Google (NASDAQ:GOOG). The firm also cites Amazon
(NASDAQ:AMZN) size and scale of investment. The stock rose another 2
percent today to $1,796.62.

Meanwhile, Sony (NYSE:SNE) was named the “best idea long” at Hedgeye. The
analyst says that the stock is set for a turnaround after more than a
decade of losses. In fact, the firm sees the shares rising 35 to 55
percent. The stock rose a fraction today to $52.21.

HERERA: Still ahead, why the trade silence today was deafening.


GRIFFETH: Admittedly, it was relatively quiet on the trade front today.
There were few new developments out of Washington or Beijing, but it may
actually be the silence that sending the biggest message right now.

Eunice Yoon has that story.


the prospects of a quick resolution to the trade war don`t look good. The
Commerce Ministry said today that the two sides aren`t talking to each
other and that China hasn`t reached out.

At a regular press briefing, the ministry said the premise of negotiations
is mutual trust. There`s no communication on restarting negotiations.

When asked about China`s next step, the spokesperson wouldn`t say other
than that Beijing is in the right to fight what it believed to be an unjust
move by the United States.

American companies here have been concerned that China will choose to
punish them by bugging them down in paperwork or encouraging consumer
boycotts, as it has in the past to penalize other countries. So far with
the U.S., China has been cautious, appearing to take on a different tactic
perhaps because its own economic strength is so dependent on America.

Instead, China appears to be offering a better market access to the U.S.`s
economic rivals. Just this week, China approved a $10 billion facility for
German chemicals company BASF. The firm`s first wholly owned plant in
China, something American companies have also been asking for.

But China wouldn`t want to alienate U.S. companies entirely. China wants
to keep foreign investment coming in or risk losing factories or jobs. In
fact at the briefing, the ministry held up Tesla`s recent announcement to
open up a Gigafactory in Shanghai as an achievement it said an example of
China`s openness to U.S. investment.

The ministry added that China was sorry American companies like GE and Ford
could be hurt by the U.S. tariffs and said that these companies should take
up any complaints to the Trump administration.

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


HERERA: Defense stocks got a lift today after the president reaffirmed
U.S. support for NATO. Shortly after forcing an emergency session,
President Trump said NATO allies made and commitments to increase spending.


that I was extremely unhappy with what was happening and they have
substantially up their commitment.


HERERA: But other leaders have reportedly denied that NATO members had
made any significant new commitments to spending beyond what they agreed to
back in 2014. Nonetheless, shares of Northrop Grumman (NYSE:NOC), Lockheed
and Boeing (NYSE:BA) rose in trading today.

GRIFFETH: Well, following that NATO summit in Brussels, the president then
made his way to England today where he attended a formal dinner with U.K.
Prime Minister Theresa May and various U.S. business leaders.

Steve Sedgwick is in London for us tonight.


Donald Trump has begun his first official visit to the United Kingdom since
he became president. Very interesting series of events over the next
couple of days, including a dinner with dignitaries on Thursday evening at
Blenheim Palace, the birthplace of course of Winston Churchill, a man who
typified, of course, and created the special relationship phrase between
the U.K. and indeed the United States.

On Friday, the president will be having key bilaterals with the U.K. Prime
Minister Theresa May. Theresa May, of course, under a huge amount of
pressure over Brexit and the resignation this week of Boris Johnson, her
foreign secretary. So, she`ll be hoping for a win from Donald Trump and
some positive language both on trade deals potentially and indeed on
defense agreements as well.

Thereafter, the president will be visiting Windsor Castle to speak and have
tea with Her Majesty, Queen Elizabeth II.

But the visit, of course, very controversial. Stop Donald Trump coalition
of protesters protesting throughout his visit in London and around the
United Kingdom, including a very large march of over 50,000 people we`re
told taking place on Friday in Central London.

For NIGHTLY BUSINESS REPORT, this is Steve Sedgwick in London.


HERERA: Higher fares help Delta jet passed expectations. That`s where we
begin tonight`s “Market Focus”.

Delta also said that it flew more passengers this quarter and that helped
offset a big rise in fuel costs. But the airline did say it`ll have to
lower its yearly profit forecast, eliminate some travel routes and hike
prices even more to combat its growing fuel bill. Overall however, Delta
said that its long-term outlook pretty much remains unchanged.


ED BASTIAN, DELTA CEO: We had a really solid quarter. In fact, demand is
very strong, almost $12 billion in revenue. It`s our highest revenue in
our history in the second quarter. In fact, in the month of June, we had
six of the ten busiest days in Delta`s history.

So, while fuel prices are up and it`s causing some short-term pressure on
earnings, the long-term outlook is very strong and more people than ever
are flying Delta.


HERERA: Delta shares rose more than 1 percent to $50.73.

L Brands said sales disappointed last a month at its Victoria`s Secret
business. The lingerie retailer said fewer customer visits caused it to
cut prices on already discounted merchandise and that led to weaker
margins. Shares of L Brands fell 12 percent to $32.34.

Now, a follow-up from a story that we told you about last night. Papa
John`s founder John Schnatter has resigned as chairman after he admitted to
using a racial slur on a conference call back in May. Last night, we
referred to him as CEO but he stepped down from that position in December.
Shares of Papa John`s finished up 11 percent to $53.67.

GRIFFETH: Walmart is reportedly weighing on whether or not to keep its
current credit-card partner, that would be Synchrony Financial, or to go
with new contender Capital One. Bloomberg says whoever it is, the world`s
largest retailer just once its card partner to help it expand into the
mobile payment space. Shares of Walmart, Capital One and Synchrony Capital
were all lower on this news. Synchrony was down the most today.

And the SEC is reportedly launching a broader investigation into whether
Facebook (NASDAQ:FB) adequately warned investors that user data could be
accessed and used by third parties such as Cambridge Analytica without
consent. The government hopes to understand how much Facebook (NASDAQ:FB)
knew about Cambridge`s handling of that data. Facebook (NASDAQ:FB) share
is closed up 2 percent today to $206.92.

A St. Louis jury has ordered Johnson & Johnson (NYSE:JNJ) to pay $500
million in damages to more than 20 women who sued J&J, alleging the
company`s talc-based products contained asbestos and caused ovarian cancer.
J&J, as you know, has faced multiple trials over similar claims that it`s
talc products caused cancer. This though was the largest award. Several
awards though have been erased on appeal and J&J does continue to deny the
allegations. Shares rose 1 percent today to $127.76.

And late today, shares of McDonald`s (NYSE:MCD) fell on a report from the
Illinois Department of Health that it is investigating about 90 cases of an
intestinal illness possibly related to eating McDonald`s (NYSE:MCD) salads.
The Iowa Department of Health has also opened a similar investigation. You
can see the stock drop here on late today. Shares rose a fraction though
during the regular session to $159.12.

HERERA: Earnings season gets underway in earnest tomorrow when a handful
of the country`s biggest banks release their quarterly results. And while
expectations overall are high, that`s not necessarily the case with the
financial sector.

Leslie Picker explains.


to restore investor confidence in banks again? That`s the key question
ahead of reports from JPMorgan (NYSE:JPM), Wells Fargo (NYSE:WFC), and
Citigroup (NYSE:C) all out tomorrow morning. The sector has declined about
15 percent since reaching its year-to-date peak at the end of January.
Analysts say the bar is low to impress the market.

Goldman Sachs (NYSE:GS) wrote in a note this week that earnings simply have
to be, quote, good enough. Meaning they really just need to post numbers
that are in line with Wall Street`s estimates.

Thomas Michaud, the president and CEO of KBW (NYSE:KBW), the investment
bank, says he`s optimistic about what the industry`s earnings will reveal.

going to be very good. I think the markets going to generally like what
they see. They`re going to see good revenue growth. They`re going to see
good expense control. They`re going to see improving mentions and I think
that the bull`s story on the fundamentals is going to be intact.

PICKER: The bullish case centers around the Federal Reserve and its
potential to hike rates twice more this year. Higher interest rates are
helpful for banks because they are able to earn more on the deposits they
hold. The market is also waiting for the impact of tax reform to trickle
down to businesses, which will then seek more loans from the banks.

To be sure, there is some concern that bank earnings have peaked and that
the trade war could cause economic growth to decelerate. That`s caused
bank stocks to underperform the broader market by about 4 percent this

Amid the decline though, analysts say banks have a high likelihood of a
positive surprise.



GRIFFETH: Karyn Cavanaugh joins us now to talk more about the second
quarter earnings expectations and what we can expect for this season.
She`s senior market strategist with Voya Investment Management.

Karyn, thanks for joining us tonight.

you for having me.

GRIFFETH: Certainly, expectations are high pretty much across the board
for all the S&P sectors, but nowhere are they stronger than in energy, very
strong expectations, right?

CAVANAUGH: Absolutely. Right. Well, remember energy — they really
dipped — the earnings really dipped when oil prices went down and now,
they`ve recovered very nicely.

So, energy will be the biggest gainer in terms of earnings growth in the —
in the second quarter.

HERERA: And technology is also on that list with a gain significant
double-digit gain as is materials.

CAVANAUGH: Right. Well, technology has been there throughout all of the
uncertainty over the last couple quarters and it`s going to continue to be
a good earner and materials also remember we saw prices spiked and so some
of the material companies as well. But overall, we`re expecting good
earnings across the board, even some of the laggards — utilities, telecom
— they`re still positive earnings.

GRIFFETH: Now, we can show that. The laggards, they are all gainers, as
well as you mentioned, real estate —


GRIFFETH: — is on that list as well. So, I guess this is indicative of a
strong economy right now. Is that the idea?

CAVANAUGH: Right. Despite all the trade concerns and there are a lot of
concerns out there, the macroeconomic environment is still very strong.
And all those concerns about trade haven`t really filtered down to actual
earnings yet. So, Q2 is going to be a very strong quarter.

HERERA: We talked a little bit earlier and Leslie Picker`s report
reflected the fact that some of the financials, the street is a little bit
worried that they won`t come in as strong as expected. But you seem to
disagree with that. You think they`re going to do all right.

CAVANAUGH: I think the expectations are for about 18 percent year-over-
year growth in the financials. That`s pretty darn good. So, I think that
they`ll probably exceed expectations and I don`t think there`s anything
wrong with 20 percent growth in the financial sector.

So, investors are a little bit weary of financials just because the yields
are so low, but I think they`ll do fine.

GRIFFETH: Karen Cavanaugh, again, with Voya Investment Management —
thanks again for joining us tonight.

CAVANAUGH: Thank you.

GRIFFETH: And still ahead, why the last frontier finds itself in the last
place when it comes to business.


GRIFFETH: As we reported earlier this week, CNBC ranked Texas as the
number one state for business this year, due in part to the benefits of
rising oil prices. But for another big oil state, the situation is very

Scott Cohn has that part of the story for us tonight.


frontier, is the last place state in 2018. Oil is the state`s lifeblood
and the price of oil has increased, but not enough to meaningfully boost
production on the North Slope, in a state that depends on oil for 85
percent of its revenue.

The result, Alaska had to do something this year that it is never done
before, it dip into its oil wealth, the so-called Alaska permanent fund to
head off a $2.5 billion budget deficit, a controversial move because it
reduces the oil dividend that Alaskans receive each year.

Governor Bill Walker says it puts the state on a more sustainable path, but
damage is already done. Unemployment is the highest in the nation.
Workers are fleeing. Business capital is steering clear. And for the
first time since 2009, Alaska is America`s bottom state for business.



HERERA: He always does such a great job —

GRIFFETH: Well, you know, oil is very much a part of their economy right
now, but it`s all about job growth. And if you`re not getting that —

HERERA: You`re not getting ahead, yes.

GRIFFETH: At the bottom there.

HERERA: That will do it for us tonight. I`m Sue Herera. Thanks so much
for joining us.

GRIFFETH: I`m Bill Griffeth. Have a great evening. We`ll see you


Nightly Business Report transcripts and video are available on-line post
broadcast at The program is transcribed by ASC Services II
Media, 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) 2018 CNBC, Inc.


This entry was posted in Transcripts. Bookmark the permalink.

Leave a Reply