ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Health care powerhouse.
Centene (NYSE:CNC) is buying WellCare for more than $17 billion, but the
acquisition comes just as Washington readies itself for another policy
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: New normal. Mortgage rates
are falling fast, and that may not change for a while.
GRIFFETH: Switching sides. McDonald`s (NYSE:MCD) will no longer fight
minimum wage increases, putting one of the country`s largest employers on
the other side of a controversial issue.
Those stories and much more tonight on NIGHTLY BUSINESS REPORT for
Wednesday, March the 27th.
HERERA: Good evening, everyone, and welcome.
Health care deal-making is, well, pretty healthy. Insurer Centene
(NYSE:CNC) has agreed to buy managed care provider WellCare, something we
told you was possible last night. That deal adds to the flurry of the get-
togethers that we`ve seen this year. In fact health industry mergers
globally have had their biggest first quarter in 12 years.
Shares of the companies moved in opposite directions. WellCare was up 12
percent. Centene (NYSE:CNC) fell nearly 5 percent.
It is important to note that both Centene (NYSE:CNC) and WellCare have a
number of things in common, including significant business around
government health programs. And that could prove to be either a risk or a
Bertha Coombs has the details.
BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Centene (NYSE:CNC)
has grown its Medicaid business tenfold over the last decade in part
through regional acquisitions. $17.3 billion deal to buy its Medicaid
rival WellCare would be its biggest transaction yet.
MICHAEL NEIDORFF, CENTENE CEO: These are two good companies in my opinion.
You`re putting them together. They`re high growth industries.
They have complementary products that work well together. We`ve had the
objective to build our Medicare product. They have a strong Medicare
product. We have a technology platform they need for their work.
COOMBS: The combined company would become the nation`s fourth largest
health insurer, cementing Centene`s leadership in Medicaid, safety net
programs and the Affordable Care Act exchange market, and it would quickly
add scale in Medicare. The combined company would have a million Medicare
Advantage members and nearly 4 million seniors and Medicare part D drug
plans across all 50 states.
What concerns some investors about the deal, Centene (NYSE:CNC) is
projecting slower earnings growth in the first year. S&P credit analysts
aren`t worried about that.
DEEP BANERJEE, S&P GLOBAL RATINGS: With a deal this size, there`s always
integration risk. So we think integration risk in this case is a little
bit muted than some of the other larger deals that we have looked at. Now,
regulatory, that`s a very different question.
COOMBS: Antitrust regulators may raise concerns about overlap in Centene
(NYSE:CNC) and WellCare`s Medicaid businesses in Georgia, Missouri and
Nebraska. Their combined market share tops 60 percent in those states.
MATT BORSCH, BMO CAPITAL MARKETS: When we look at the possibility that
both Georgia and Missouri would require divestitures to meet approval, that
would be something a little bit above 15 percent of the combined Medicaid
membership. That`s a lot. But I think that that`s manageable. That may
not be necessary.
COOMBS: Investors have already seen risks in Centene`s exposure to the
Affordable Care Act, with the Trump administration now asking the federal
courts to overturn the law in a case that`s under appeal. Centene`s CEO
thinks the Supreme Court will ultimately uphold the law.
NEIDORFF: I`ve always found when there`s a certain amount of uncertainty,
in a challenging environment, that`s the time to act.
COOMBS: If approved, Centene (NYSE:CNC) expects to close the deal late
For NIGHTLY BUSINESS REPORT, I`m Bertha Coombs.
GRIFFETH: Chris Meekins joins us right now to talk about this deal and,
boy, the up in the air policy landscape in Washington when it comes to
managed care and health insurers.
He is the health care policy analyst at Raymond James.
Chris, thanks for joining us tonight.
CHRIS MEEKINS, HEALTH CARE POLICY ANALYST, RAYMOND JAMES: Thanks for
GRIFFETH: So, what do you think, does this deal make sense or will we know
down the road after things have been resolved, if they can be resolved any
time soon on policy in Washington?
MEEKINS: I think hindsight is always 20/20. But looking at the deal
itself today when I looked over the information provided I think it makes a
lot of sense. Centene (NYSE:CNC) had a decision, do they want to be
acquired or do acquiring? And they decided to go out and pick up WellCare,
which has a lot of complimentary businesses. There`s a little overlap in a
few states but with some divestitures, they should work their way out.
And when you look at the managed care names, which so far year to date are
basically flat to down 1 percent as a whole, you know, it`s a good time to
jump on while these names are a little cheaper than they were at other
HERERA: I was going to ask you about that, do you anticipate seeing more
deals, even with the regulatory uncertainty in Washington?
MEEKINS: Yes, I think you`re going to probably see some additional deals.
When I look at who could be next on the acquisition list, I look at names
like Molina, I look at names like Magellan Health, I look at even Humana
(NYSE:HUM), which has been talks about mergers in the past but hasn`t
really found the right fit so far.
So, I think there`s a lot of opportunity here, because as you look going
forward, you hear a lot of stuff in D.C. about Medicare-for-All and you
hear a lot of stuff about single payer. But one great example is when
House Democrats had an opportunity this week to introduce a new health care
bill as their signature thing in the new Congress, what they did is they
went after building on the Affordable Care Act and making it better. They
didn`t look at moving forward completely up ending the entire Medicaid and
GRIFFETH: One thing that everybody agrees on, though, is costs need to
come down. That would seem to put a cap on some of the growth
opportunities for some of these insurers. Do you agree? Is that a problem
MEEKINS: I mean, there`s no question that as they look at ways to regulate
costs, there are opportunities. Right now, there`s actually kind of a
reverse incentive because insurers are only able to keep the medical loss
ratio of 85 percent. They can only keep basically 15 percent for them,
they don`t really have an incentive to drive costs even greater.
With new advances in technologies, what we`re seeing is there`s greater
opportunities for value-based care and finding ways to make sure those that
are the highest drivers of cost, make sure they take their medication, make
sure they get the help that they need before they had episodes. So, I
think you`ve seen a lot of great leadership like UnitedHealth and Optum
that are leading the way. And I think as you get to scale with some of
these companies, we`re only going to see those areas grow.
GRIFFETH: Well, clearly, this issue is back on the agenda in Washington.
So, we`ll see what happens this year.
Chris Meekins with Raymond James, again, thanks for joining us tonight.
MEEKINS: Thanks so much.
HERERA: On Wall Street, stocks fell as the yield on the 10-year Treasury
hit its lowest level since 2017. Concerns about the health of the global
economy fueled the decline in yields and that weighed down stocks. The Dow
Jones Industrial Average was down 32 points to 25,625, the Nasdaq fell 48
and the S&P 500 was off 13.
GRIFFETH: Meanwhile, our trade deficit with the rest of the world narrowed
sharply in January. The Commerce Department said this morning the deficit
in trade and services shrank by 15 percent to $51 billion. That`s smaller
than the $57 billion that was forecast by economists. In fact, the smaller
deficit was driven by a decline in imports from China and other countries
HERERA: Even as economists grow concerned about the health of the economy,
it`s also important to know what Americans think, because they`re the ones
driving a lot of the activity. And that`s where CNBC`s All America Survey
Here`s Steve Liesman.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: While markets day in
and day out worry about a coming recession, that doesn`t seem to be the
case for the American public. The CNBC All America Economic Survey of 800
Americans nationwide finds optimism on the economy. It`s down a bit from
the lofty levels of last year, but half of all Americans think the economy
is in good or excellent shape.
Two-thirds see the economy either improving or staying the same in the year
KEVIN MAHN, HENNION & WALSH: Consumer confidence leads to consumer
spending. As we know consumer spending accounts for 70 percent of GDP
growth. Is it below peak? It is. But that supports the theme of slowing
but growing. We expect the economy to continue to grow. Not at the levels
we saw last year but certainly continue to grow.
LIESMAN: Americans outlook for growth in their wages and their home prices
are down from last year, but 40 percent still expect bigger paychecks and
42 percent still believe their homes will rise in price. Both are on par
with the averages for the past several years.
The outlook for stocks also down from the levels hit last year near the
market peak, but it`s bounced back from the lower levels hit amid the
JJ KINAHAN, TD AMERITRADE: February, through to the beginning of the fall,
economic confidence was fairly high. When we saw our IMX, we saw people
that measures engagement with the market, people become more engaged at
that time. Starting in October and Wilfred and I talk about this a lot,
October, November, December, our clients actually drew down their
engagement with the market in January.
LIESMAN: Forty-one percent say it`s a good time to invest in stocks, up
three points from the last survey, and 30 percent say it`s a bad time, down
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.
GRIFFETH: And as interest rates fall, so do mortgage rates. And borrowers
and buyers alike are reacting to this new normal.
Diana Olick has more from Washington.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Mortgage rates
continue to fall today edging very close to the 3 percent range on the 30-
year fixed. “Mortgage News Daily” reporting an average 4.03 percent for
loans with 20 percent down payment. So some lenders are already in the 3s.
And today, we got the response to last week`s drop in rates. Mortgage
applications jumped more than 9 percent, according to the Mortgage Bankers
Refinances took the lead, jumping 12 percent for the week. For the last
two years, refi volume just plunged but clearly we`re seeing a turn-around,
all because rates have been dropping. You can see the sharp plunge after
the fed`s announcement last Wednesday that it would not raise rates any
more this year. Mortgage applications to buy a home also rose 6 percent
for the week, although just 4 percent higher than a year ago.
And on that note, once again the average loan size hit a new record. This
is likely because when rates drop, people with bigger mortgages benefit
more from a refinance. On the buy side, lower rates help people afford
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
HERERA: One of the most dramatic stories today took place across the
Atlantic, in the United Kingdom, where Prime Minister Theresa May said she
will resign if parliament passes her Brexit deal. The move is an attempt
to push members of parliament to approve a plan.
Willem Marx is covering the story for us tonight from London.
Willem, what happened today? And perhaps more importantly, what happens
WILLEM MARX, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, Sue, today was
meant to be about parliament deciding on which shade of Brexit it could
find a majority for. We`re just a few moments away from getting the
results of these so-called indicative votes where they indicate their
preferences in a nonbinding way.
Before that voting kicked off, Theresa May met with members of her
conservative party and under a huge amount of pressure promised that she
should not be the person that would lead the U.K. through future
negotiations on trade with the European Union, essentially implying that
she would not be prime minister in two months time.
May 22nd, as of tonight, is one of two official legally binding Brexit
dates. The other one is April the 12th. If she can get her deal through,
it will be that later date in May. If she can`t, as of right now, the
default is that the U.K. will leave the European Union on April 12th.
What happens now? Her government will probably try to bring her deal to a
vote once again for the third time. It was defeated by 149 votes in the
parliament around 650 last time. She still has a huge amount of work to
But by making this promise, by assuring MPs that she would be stepping down
at some point in the not too distant future, she already seems to be
getting some members of her party back on her side. But one caveat, the
small Northern Irish party, the Democratic Unionist Party, that helps prop
up her government, they have said tonight they will not back her deal
regardless of this offer for her resignation.
GRIFFETH: But irony or not, Boris Johnson of all people said that he would
vote for it tonight.
But who do you think, assuming she does then end up stepping down, who do
you think leads the charge in the negotiations in the future? Any names
coming to surface yet?
MARX: Well, there`s a few. One of them would be her former Brexit
secretary, Dominic Raab who`s been very quiet the last 24 hours. He`s not
one of the big high-profile figures in the Conservative Party. He said
they will now support this deal.
That allows him to win support from the hard line core membership of the
conservative party, which is not necessarily representative of the rest of
the U.K., let alone the conservative parliamentary party behind me. He is
the one obvious figure. Michael Gove, one of her ministers, he`s also been
quite loyal to Theresa May in recent months but has a reputation as an
intelligent politician and comes up with intelligent policies.
So there are a few men and women in the mix, but those are two that come to
HERERA: Well, we will be watching it closely. Willem, thank you so much.
Willem Marx in London.
GRIFFETH: Time to look at some of today`s “Upgrades and Downgrades”.
Coverage of Boeing (NYSE:BA) was resumed with a buy rating at Citi with the
analyst there basing his call on a multi-month grounding of the 737 MAX
aircraft with what he anticipates will be a manageable fix. The price
target now $450. That stock was up 1 percent today to $374.21.
Ralph Lauren was upgraded to outperform from market perform at Wells Fargo
(NYSE:WFC). The analyst cited the potential for growth to accelerate and
he called Ralph Lauren a rare standout. Price target, $150. Shares were
up 2.5 percent to $125.34.
HERERA: On Semiconductor was upgraded from buy to neutral at Goldman Sachs
(NYSE:GS). The analyst cites opportunities for growth in areas like 5G,
electric vehicles and the cloud. The price target is $26. The shares fell
2 percent to $20.56.
Sketchers was upgraded to positive from neutral at Susquehanna. The
analyst cites channel checks that point to increased business momentum.
The price target is $37. The stock rose more than 3 percent to $32.58.
GRIFFETH: Still ahead: Boeing`s next move.
(BEGIN VIDEO CLIP)
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Boeing (NYSE:BA)
outlines changes it plans for the grounded 737 MAX. How long until the
planes get back in the air?
I`m Phil LeBeau in Seattle, Washington. That story coming up on NIGHTLY
(END VIDEO CLIP)
GRIFFETH: Southwest Airlines (NYSE:LUV) today trimmed its first quarter
revenue growth forecast. The company cited the grounding of its fleet of
Boeing (NYSE:BA) 737 MAX planes. Southwest now expects revenue per
available seat mile, which is a key metric, to grow between 2 percent and 3
percent. It had been expected to grow by 4 percent. But the softer
outlook did not impact the stock today. It was up 2 percent in today`s
HERERA: The acting head of the FAA was on Capitol Hill answering questions
about its oversight of Boeing (NYSE:BA). The certification process came
into focus following the crash of those two Boeing (NYSE:BA) commercial
jets in five months.
Dan Elwell said the agency plans to revamp the oversight process but that
it would need an additional 10,000 employees and nearly $2 billion if it
were to assume all responsibilities for aircraft certification.
GRIFFETH: Meantime, Boeing (NYSE:BA) believes it now has the fixes to
resolve those issues that forced regulators to ground its 737 MAX jets.
It`s been two weeks now since the FAA joined other aviation agencies around
the world in shutting down the popular plane following those two deadly
Phil LeBeau is in Seattle with Boeing (NYSE:BA) on their push to get the
MAX flying again.
LEBEAU: Is the 737 MAX one step closer to taking off again? Boeing
(NYSE:BA) thinks so. Today, Boeing`s vice president briefed reporters on
changes being made to the MAX and increased training for 737 pilots.
MIKE SINNETT, BOEING VICE PRESIDENT: We`re working with customers and
regulators around the world to restore faith in our industry, and also to
reaffirm our commitment to safety and to earning the trust of the flying
LEBEAU: After analyzing what may have caused the crash of the 737 MAX last
October, Boeing (NYSE:BA) is limiting how often the flight`s automated
controls can influence the Max`s flight path. It`s also updating the
cockpit display so pilots are alerted when the system kicks in. A
criticism Boeing (NYSE:BA) has faced since the crash of a Max in Ethiopia
earlier this month. Will these changes ease the pressure Boeing (NYSE:BA)
SCOTT HAMILTON, LEEHAM COMPANY: It`s not going to alleviate the pressure.
It`s going to explain what happened and how they came to the processes and
decisions they came to. But until the airplane is back in service and
proven to be safe, if you will, pressure will remain on Boeing (NYSE:BA)
for quite a while yet.
LEBEAU: The MAX is not flying until Boeing (NYSE:BA) clears several
hurdles, including having the FAA certify the software update and then
lifting the grounding. That will clear the MAX to fly in the U.S. But
foreign governments will still need to approve the fix.
SINNETT: The 737 is a safe airplane. The 737 family is a safe airplane
family. And the 737 MAX builds on that tremendous history of safety that
we`ve seen for the last almost 50 years.
LEBEAU: Boeing (NYSE:BA) believes the changes it has outlined can be
implemented in a matter of days. But until the FAA and regulators around
the world approve the safety of the 737 MAX, these planes remain grounded
and some believe that could last another 6 to 12 weeks.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Seattle, Washington.
HERERA: Lennar (NYSE:LEN) builds a solid foundation. That`s where we
begin tonight`s “Market Focus”.
The home builder reported a 24 percent increase in orders and a 30 percent
rise in deliveries, signaling improved demand for new homes. The company
said falling mortgage rates will be a catalyst for the industry, and that
helped offset an earnings and revenue shortfall in the most recent quarter.
The stock rose nearly 4 percent to $51.67.
Investors had their first chance to react to results from Shoe Carnival
(NASDAQ:SCVL) (NYSE:CCL) and they liked what they saw. The retailer
reported better-than-expected earnings and same-store sales driven by
demand for women`s boots. The stock soared 22 percent to $37.30.
GRIFFETH: Meanwhile, apparel maker PVH is forecasting full-year profit
above estimates. PVH cited strong demand for its Tommy Hilfiger and Calvin
Klein brands. The company also reported better-than-expected profit and
sales for this most recent quarter. That sent the stock higher in initial
after-hours trading. It closed the regular session today up a fraction to
And Lululemon had a strong holiday quarter. The athleisure clothing chain
reported a profit that blew past analysts` estimates. Company cited strong
demand for its ready to wear. Shares rose in initial after-hours trading.
They gained 2 percent during the regular session to $146.80.
HERERA: Coming up, McDonald`s (NYSE:MCD) just made a decision that could
have a big impact on wages across the country.
HERERA: A big shift happened today in the debate over minimum wage.
McDonald`s (NYSE:MCD) had been a vocal opponent of the push to raise it,
but now, the large employer is having second thoughts.
Kate Rogers (NYSE:ROG) has more.
KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: McDonald`s (NYSE:MCD)
changing course on minimum wage. The fast food giant sending a letter to
the National Restaurant Association Tuesday saying it would no longer lobby
in support of efforts to oppose or defeat minimum wage increases.
The letter said in part: The conversation about wages is an important one.
It`s one we wish to advance, not impede. Ultimately, progress must come
from all corners of our society, and McDonald`s corporation is committed to
playing a meaningful role in the spaces we occupy.
The letter went on to say McDonald`s (NYSE:MCD) workers at its company-
owned locations have an average starting wage of more than $10 an hour.
And while it doesn`t control pay at franchise locations, McDonald`s
(NYSE:MCD) believes it is likely similar.
The company declined to comment beyond the letter to CNBC. McDonald`s
(NYSE:MCD) statement comes as pressure builds to hike the federal minimum
wage which stands at $7.25 an hour and has not been raised since 2009.
Congressional Democrats have renewed a push to increase it to $15 an hour
by year 2024 with the Raise the Wage Act, which the National Restaurant
Association opposes in its current state.
The largest food service trade group in the world said in part: Our members
are as diverse as the communities they serve, and the economies of every
region are different. Advocates say McDonald`s` move is a start but not
LEO GERTNER, NATIONAL EMPLOYMENT LAW PROJECT STAFF ATTORNEY: It`s
definitely a welcome statement but it`s really a reflection of the
mainstream consensus now. You know, 19 states are raising their minimum
wage this year. Since 2012, 22 million workers have received raises. Lots
of companies are adopting 15 as their baseline. It`s really where most of
the country is at right now. You know, it`d be notable if they adopt 15.
ROGERS: Nonetheless, efforts to hike pay for workers may have a new and
For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG).
GRIFFETH: So, what kind of impact will McDonald`s big shift on minimum
wages have on wages around the country?
Joining us right now to talk about it is Mark Hamrick. He`s senior
economics analyst at Bankrate.com.
Mark, good to see you. Thanks for joining us tonight.
MARK HAMRICK, SENIOR ECONOMICS ANALYST, BANKRATE.COM: Hello, Bill.
GRIFFETH: So, OK, Walmart, Target (NYSE:TGT), Amazon (NASDAQ:AMZN), now
McDonald`s (NYSE:MCD). They have come out in favor of a $15 federal
minimum wage. Is that enough to make this become closer to a reality or
not, do you think?
HAMRICK: Bill, first of all, I`m a little more cautious about what
McDonald`s (NYSE:MCD) either said or did not say. It seemed to me that
what they really did signal was they didn`t want to be seen as opposing a
federal minimum wage increase. I didn`t hear them say that they`re going
to raise their own minimum wages to $15 an hour. So, let`s stand back from
that just a little bit.
As the reporter package indicated, now there are only a minority of states
across the country which are essentially tethered to that low federal
minimum wage. States and localities have moved ahead of the federal
And the other political reality is simply because House Democrats want this
to happen doesn`t mean that the White House and the Senate will move along.
So, I think this is a talking point. I think it`s something that does
indeed engage McDonald`s (NYSE:MCD) in an important conversation. It`s a
good PR move as well.
HERERA: On that note, it seems as though you don`t think they did this
through the goodness of their heart but because they would be feeling
social pressure, maybe from some of their customers. They don`t want to be
left out, rather than putting both feet in.
HAMRICK: Absolutely. There has been a vocal political pressure for
McDonald`s (NYSE:MCD) to essentially stop opposing this. And the other
part is we think about some of the more dynamic players in this space that
are doing the right things in the eyes of the all-important, for example,
millennial market. And so, part of that is being what people might view as
being a good global citizen and also helping their own workers to attain a
more workable wage that can get them above that $10 an hour level that they
referenced in their letter.
GRIFFETH: But let`s face it, just this week, McDonald`s (NYSE:MCD) made
the largest acquisition in the last 20 years buying this technology company
that`s going to produce a more high-tech drive-through line there. So, I`m
wondering if their cost structure goes down because of technology, if they
feel maybe they could afford more wages at some point because they`ll be
hiring fewer workers maybe?
HAMRICK: Well, I think that remains to be seen, Bill. Obviously, there is
going to be a dance that never ends between the technology component of
this and the involvement of human workers in those stores. It may be, as
is often the case, they simply move people from one task to another.
I don`t know about you, Bill, but, you know, I still go to the grocery
store. I`d prefer to work with a cashier than go to that automated station
that never seems to work.
GRIFFETH: What`s where you and I differ, Mark. I do like the automated
Thanks for joining us tonight.
HAMRICK: Great to be with you.
GRIFFETH: Mark Hamrick with Bankrate.com.
HERERA: An update to our Brexit story tonight. The results of those
parliamentary votes are in. And the results show that there is no clear
majority for any Brexit option.
GRIFFETH: It`s not over yet.
GRIFFETH: But here`s the final numbers from Wall Street today. The Dow
was down 32 points, Nasdaq fell by 48, the S&P was down by 13.
HERERA: Just the story that keeps on giving.
GRIFFETH: Yes, it is.
HERERA: All right. That`s NIGHTLY BUSINESS REPORT for tonight. I`m Sue
Herera, thanks for joining us.
GRIFFETH: I`m Bill Griffeth. Have a great evening. We`ll see you