Transcript: Monday, September 6, 2013

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib, brought to you by —

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TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Broad gains. Stocks soar on deals here at home, signs of economic growth overseas and declining worry that a strike against Syria is imminent.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: War and money. Congress is back and lawmakers will be making some key decisions on everything from Syria to the budget — and issues that will impact your money.

MATHISEN: Changing benefits. In a growing trend, IBM and Time Warner (NYSE:TWX) plan to move their retirees from company administered health plans to insurance exchanges. The companies save money, but is it good for former workers?

All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, September 9th.

Good evening, everybody. I`m Tyler Mathisen.

HERERA: And I`m Sue Herera, in tonight for Susie Gharib.

The markets kicked off this new week broadly higher, a broad base rally that sent the Dow closing back above the 15,000 mark once again. That follows strong economic data out China and Japan, a handful of mergers that boosted investor confidence, and easing worries about an imminent U.S. military strike against Syria, and we`ll talk more about those developments in Syria in just a moment.

With all 10 S&P sectors closing to the upside today, the Dow shot up 140 points, its biggest one day gain in nearly two months, the NASDAQ was up 46 points, with tech stocks like Apple (NASDAQ:AAPL), seeing strong gains in the S&P 500, which added 16.

MATHISEN: The crisis in Syria took an unexpected turn today as Congress came back to Washington after a recess, the Syrian government responded positively to a Russian proposal calling for the Assad regime to turn over control of its chemical weapons to the international community, which would then destroy them. The White House said it would take a, quote, “hard look at the idea.”

John Harwood joins us now from Washington.

John, what can we expect to hear from the president when he addresses the nation tomorrow, especially in light of these new developments today?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, look, the president is staring into the teeth of public and political opposition to these strikes. So I would expect him to address the potential for this as a resolution, just as his representatives of his administration grabbed onto it to today. So, we`ll take a hard look.

Hillary Clinton said it would be a significant step if it were actually verified that it was done. Foreign policy officials that I talk to from both political parties said if you could make sure that they were credible inspections, that these were under international control, it`s something worth taking and for a president who was clearly ambivalent about using military force in the first place, this could be the way out.

HERERA: And does it change the fact that the vote, when it does come, is expected to very, very tight indeed?

HARWOOD: It could be an influence on the vote. It also could preclude a vote from happening, Sue. It is not clear if in fact there is some sort of a deal on this subject, that we have to watch and see. We didn`t expect it today, we don`t know what`s going to happen in the next 24-48 hours, but there is no assurance that Congress is going to go ahead and vote anyway.

Remember, a lot of members didn`t want to be put on the spot, didn`t even want the president for ask for their authority. So, I think those that were expected to carry the ball and get a majority for this may welcome the idea of not having to vote.

MATHISEN: John, there is a lot of moving parts in Washington these days. Obviously, first and foremost is Syria. But soon over the horizon comes the discussions on closing the government or extending funding for the government to operate. Where does that stand?

HARWOOD: Well, that is something they can`t avoid voting on, the government runs out of money at the end of September. All signs point to both sides agreeing on a relatively clean extension of existing funding levels for a couple of months, perhaps through the end of the year to give them time to negotiate. That doesn`t settle the issue of the debt limit, which has to be raised by mid-October, according to the treasury. And exactly how that`s going to be resolved, given the Republicans` insistence that they need offsetting budget cuts, not clear at all at this point.

MATHISEN: All right, John — John Harwood reporting from Washington for us tonight — thanks very much.

HERERA: And here to talk about Congress`s first day back on the Hill is Andrew Friedman. He`s a principal at “The Washington Update”.

Good to see you again, Andrew.

ANDREW FRIEDMAN, THE WASHINGTON UPDATE: Hi. How are you, Sue?

HERERA: John mentioned the debt limit — I`m good. Thank you.

John mentioned the debt limit, one of several very important fiscal issues that need to be addressed. Overhanging those discussions, though, is the debate over Syria. How much will that cloud the Congress to get those other fiscal issues addressed?

FRIEDMAN: Well, it has the potential to do that.

John is correct. Maybe we have alleviated the need for congressional approval of Syria. Maybe we go a different route. But otherwise, it`s going to take time and Congress has precious little time to act. It`s only in session for two weeks this month. It has as John said, at least do something to fund the government. And then, in October, it has to deal with the debt limit.

I think more than that, that Syria has the potential to increase the rancor in Congress, and that`s not the kind of attitude you want as you head into debating fiscal issues.

HARWOOD: There is an awful lot here, Andy, that suggests to me of deja vu. What are the possibilities that the debt limit and the funding issues end up spilling through to the end of the year and we end up looking at the kind of Christmas bargain we had last year?

FRIEDMAN: Tyler, I think there is a very high possibility of that. I wouldn`t be surprised if Boehner pushes off the funding issue until mid-December. Maybe the debt ceiling gets a modest push-off as well, they let the government continue to borrow.

And we`re right back in something like that the fiscal cliff issue. I don`t think it is as serious, but I think it could get resolved. But it could be — mean for a tumultuous December again. We could right back where we were.

HERERA: And how should the market interpret this, Andy? Because, you know, the market does not necessarily like indecision, and if they think we`re going to end up with the kind of cliffhanger that we had the last time around, that could create a lot of volatility. Will that concern be misplaced by market participants, do you think, or not?

FRIEDMAN: Well, I think there will be volatile, first of all. The market at best is going to see some sort of short-term solution, kicking the can down a very short road. And that means that we`re going to have to revisit it, as Tyler said. And that suggests volatility. You add that to what`s going on in Syria, you add that to the new Fed chairman getting nominated, the market will have concerns.

Now, again, a compromise is going to be reached here. We`re not going to default on our debt. So, the volatility should end and we should see the market come back to where it started, all of the things being equal. But it could be a bumpy ride.

MATHISEN: One of the issues has to do with the entitlement and the spending, and one of the key debates here with respect specifically to Social Security, has to do with how the cost of living adjustments are calculated, on which measure of inflation are they based. Where do you think it will end up? And the president has indicated at least some willingness to consider the so-called chained CPI (NYSE:CPY) as a substitute for the standard CPI (NYSE:CPY).

FRIEDMAN: Yes, you`re absolutely right, Tyler. I think that is the thing that will be in play when all this comes to a head, probably much later this year. The chained CPI (NYSE:CPY) essentially acknowledges that when the price of something gets too high, we don`t just buy the high, pay the higher price, we substitute something cheaper. So, it doesn`t grow as quickly, it saves the government money.

As you pointed out, the president has said he would accept the rate of growth which we`d keep Social Security benefits in the future lower if we had some tax changes. And I think we could have some tax changes by just simply closing some loopholes, we don`t have to get into the whole debate over rates and big deductions like mortgage interests. Close a couple of loop holes and maybe there you have your compromise.

HERERA: All right. Andy, thank you very much. Andrew Friedman, principal at “The Washington Update”.

MATHISEN: Well, it`s quite clear that the political Washington has to deal with some huge issues this month and into the fall. But one thing policymakers seemingly don`t have to worry about quite as much right now is the economy. The latest survey from the National Association for Business Economics says the U.S. economy will grow by 3 percent next year and that will be a significant step up from this year. The widely respected group expects more jobs to be created and inflation to stay low.

HERERA: Gas prices, though are inching higher. The latest Lundberg Survey of pump prices around the U.S. finds gasoline rose 2.16 cents a gallon in the past two weeks, bringing the average cost to $3.58 a gallon. That increase coincided with the spike in crude oil prices.

MATHISEN: Well, heading lower is the size of mortgage loans guaranteed by Uncle Sam. Officials at the Federal Housing Finance Agency are looking to lower the maximum size of home mortgage loans eligible for backing by Fannie Mae and Freddie Mac. Those are the two government run mortgage giants. The idea is to wean more mortgages off of government support and let private companies take a bigger role in guaranteeing home loans.

HERERA: Meantime, Wells Fargo (NYSE:WFC), the nation`s fourth largest bank says it expects to make fewer loans in the next quarter. Even though it`s the largest U.S. mortgage lender, Wells Fargo (NYSE:WFC) it will see a drop of 30 percent in new mortgages due to those rising interest rates.

Last week, in a story about JPMorgan (NYSE:JPM) Chase Bank getting out of the student loans business, we mistakenly reported that Wells Fargo (NYSE:WFC) had already stopped accepting requests for student loans. But, in fact, Wells Fargo (NYSE:WFC) is still in that business, with about $11 billion worth of student loans.

MATHISEN: Well, from Wall Street to Main Street, everyone is watching what Apple (NASDAQ:AAPL) plans to unveil at company headquarters tomorrow. The spotlight will be on CEO Tim Cook. Shareholders and techies alike want to see Apple (NASDAQ:AAPL) dazzles Steve Jobs-style, with new products and services.
Jon Fortt has a preview.

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JON FORTT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Big day for Apple (NASDAQ:AAPL) CEO Tim Cook and the iPhone with the company`s reputation for innovation on the line.

For the first time, Apple (NASDAQ:AAPL) watchers expect to see two iPhones, the high end of iPhone 5S and more affordable and colorful 5C, which might help expand Apple`s market share.

MARC ANDREESSEN, ANDREESSEN HOROWITZ GENERAL PARTNER: Market share is really important. In the platform game, market share is important. You have to have high unit value. You have to have high market share in order to get the best developers ultimately. I think it really does matter.

And so, I think it will be really good for Apple (NASDAQ:AAPL) and really good for the industry if the market share went up.

FORTT: Analysts expect the 5C to come in five colors, yellow, red, blue, green and white. The big unknown is the pricing. In the past, new iPhones have started at about $650 with the carrier subsidiary. What`s unclear, will the new 5C replace the iPhone 5, or will it replace the lower end 4S? It`s an important question because there is a balance involved. Price 5C too high and people will say it`s too expensive for emerging markets. Price it too low, it could cannibalize higher margin sales.

Whichever way Apple (NASDAQ:AAPL) goes, it`s sure to have an impact on the second tier of smartphone makers, including BlackBerry and Nokia (NYSE:NOK), just as Nokia (NYSE:NOK) is starting to gain some ground.

STEPHEN ELOP, FORMER CEO, NOKIA: So being the player with Windows phone and partnership with Microsoft (NASDAQ:MSFT), to combat Samsung, to combat Apple (NASDAQ:AAPL) feels like a good place, because if you take a look at the Android market right now and the other players in the Android market environment, it is a tough slog.

FORTT: We`ll have to see if a new iPhone makes that slog even tougher.

For NIGHTLY BUSINESS REPORT, I`m Jon Fortt.

(END VIDEOTAPE)

MATHISEN: An interesting day ahead tomorrow.

And still ahead tonight, some of America`s biggest employers are changing the way their retirees get health insurance. So, will more companies follow? And what does it mean for you?

First, a look at how the most widely held stocks performed today.

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MATHISEN: Carl Icahn is throwing in the towel. The activist billionaire investor is giving up his big bitter months-long fight to take over the computer maker, Dell (NASDAQ:DELL). Just a few days before Dell (NASDAQ:DELL) shareholders are scheduled to vote on a $24 billion buy out offer from the company founder, Michael Dell (NASDAQ:DELL), and private equity partner, Icahn admitted that it would be almost impossible for his rival proposal to prevail.

HERERA: An ultra-luxury retailer is getting a new owner. Privately held Neiman Marcus (NYSE:MCS), perhaps best known for his over-the-top Christmas catalogues of high priced gifts, is being bought out for $6 billion by California-based investment firm Ares Management and a Canadian pension plan investment board.

MATHISEN: And deal news is where we begin tonight`s “Market Focus.”

Molex (NASDAQ:MOLX), maker of electronic connectors for companies, including Apple (NASDAQ:AAPL), will be acquired by the privately owned Koch Industries for more than $7 billion. The deal diversifies Koch Industry`s holdings, which include Brawny Paper Cups and Dixie cups, and is run by two of the world`s richest men, Charles and David Koch.

Shares of Molex (NASDAQ:MOLX) soared more than 30 percent, $38.33 today, making it the best performing stock in the S&P 500 today.

And Hovnanian reported earnings that missed analyst estimates, but investors shrugged off the week in expected numbers, focusing instead on the home builder`s double digit revenue growth and higher home prices. It also saw an increase in contract back log, which is a sign of a potential future revenue, and a decline in cancellations, and that pushed the stock higher by 2 percent, to $5.15.

HERERA: Isis Pharmaceuticals (NASDAQ:ISIS) and Biogen Idec (NASDAQ:BIIB) are teaming up. The drug companies say they will work together to develop therapies that treat neurological disorders. The six-year collaboration gives Biogen Idec (NASDAQ:BIIB) exclusive rights to use technology from Isis and will pay $100 million up front. Isis will be mostly responsible for drug discovery. This is the fourth deal between those two companies, just in the last two years, sending Isis higher by 13 percent, to $31.81, and Biogen Idec (NASDAQ:BIIB) up more than 1 percent to $228.86.

Shares of BlackBerry rising today, on reports that a Canadian investor may be close to buying the smartphone maker, according to a report in Britain`s “Sunday Times”, BlackBerry`s largest shareholder, Prem Watsa, has assembled billions in backing from Canada`s biggest pension funds for a possible deal, and pushed BlackBerry`s stock up more than 6 percent to $11.53.

And shares of Delta higher as its stock is set to be added to the S&P 500 index after the close of trading tomorrow. Delta will replace BMC software, and stocks often move higher when they`re added to major indices, because all the funds that mirror those indices must buy those newly added stocks.

Delta rose 9 percent to $21.76.

MATHISEN: And some big health care changes are coming to some big companies very soon. Time Warner (NYSE:TWX) and IBM, both announced plans to transfer their U.S. retirees from company sponsored health plans to private insurance exchanges.

Bertha Coombs has more now on why these two corporate giants are making these changes and why they`re doing it now.

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BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Big Blue is making changes in how it pays for retiree health coverage. IBM chief health director Kyu Rhee spells out why in a YouTube announcement.

KYU RHEE, IBM CHIEF HEALTH DIRECTOR: We projected health care costs in the current IBM plan will triple in the next few years, largely impacting your premiums and out of pocket costs.

COOMBS: Instead of offering a Medicare supplemental plan itself, IBM will give retirees money in a health account that they can use on a private Medicare exchange run by Extend Health to buy Medicare supplemental coverage, drug, dental and vision plans.

BRYCE WILLIAMS, TOWERS WATSON MANAGING DIRECTOR: It`s really about one thing, and that`s sustainability. It`s also about predictability. The CFOs inside major corporation, they want to know not just what our health care costs are this year, or next year, what might they are in three, five, 10 years.

COOMBS: Rather than one group plan, retirees choose between competing insurance offerings and the competition can mean lower costs on both sides.

PAUL FRONSTIN, EMPLOYEE BENEFIT RESEARCH INSTITUTE: In some ways, this is a very subtle change in the way retirees get health benefits. But for the retiree, it looks and feels a lot different than it is.

COOMBS: Towers Watson`s Extend Health unit provides agents who help retirees explore their options, with more than 40 “Fortune” 500 major clients, including DuPont and major unions, it`s the nation`s largest private Medicare exchange, handling benefits for 500,000 retirees.

(on camera): It`s completely voluntary for companies to offer retiree health plans, even under the Affordable Care Act. There`s no requirement. Most only offer it for their legacy retirees and those under contracts, as health care costs have risen over the years. The number of big firms actually offering retiree coverage has fallen sharply.

From 40 percent in 1993 to just sentence percent, last year, moving to define contribution plans to give firms a way to continue to provide coverage.

WILLIAMS: CFOs at every major corporation now can, for the first time, say we`re allocating these dollars in a very fixed fashion and we can get a real sense for what our costs are going to be five years out, 10 years out. The net result of which is it allows these companies to stay in the game of providing coverage for their retirees.

COOMBS: Benefit analysts say they expect more retiree coverage announcements as enrollment season nears this fall.

For NIGHTLY BUSINESS REPORT, I`m Bertha Combs.

(END VIDEOTAPE)

HERERA: And you saw Towers Watson (NYSE:TW) featured in Bertha`s report. Well, obviously, it is a company that is applauding IBM`s health care changes. The share shot up some 7 percent today. The employee benefit consultant does own those insurance exchanges that we mentioned that contracted with IBM. And now, more than 100,000 Big Blue retirees are expected to become Towers Watson (NYSE:TW) customers.

MATHISEN: And, Sue, joining us now to talk more about company`s moving retired workers to privately run insurance exchanges is John Grosso. He`s a consultant and the head of the retiree health task force at Aon (NYSE:AON) Hewitt.

Mr. Grasso, welcome. Good to have you with us.

Let me ask you a couple of questions here.

These exchanges will be used for Medicare recipients to buy Medicare advantage and supplemental Medicare policies. Am I right on that basically?

JOHN GROSSO, AON HEWITT CONSULTANT: That`s correct. It`s individual Medicare advantage. It`s Medigap, an individual Part D coverage. Correct.

MATHISEN: And forgive me for being dense about this, John, but what happens here? If I`m a retiree from Time Warner (NYSE:TWX) where I did actually used to work, what are they going to do? Are they going to give me money to go out and then shop on this exchange and compare plans? How is it going to work?

GROSSO: That`s right. Most companies will give the retirees a premium subsidy, a tax effective premium subsidy and a health reimbursement account. They`ll partner with a private exchange player and give retirees guided access to the individual market to help them find plans in their own zip code that will help them meet their needs and provide license benefits center agents that will actually work with them to find the right plan for them.

HERERA: You know, John, it sounds like a win/win short term anyway. From what you`re discovering, more choices, the ability to shop around, therefore price comparisons. But what are the cons? What are some of the negatives that might be looming out there?

GROSSO: Sure. There are some challenges to consider. And I think, first and foremost, it`s important to understand how the employers chosen to subsidize the program, because it`s very likely that the employer subsidy won`t necessarily keep up with health care inflation longer term, which will result in a cost shift to retirees, mean more out-of-pocket down the road for the retiree than otherwise.

So there are some challenges there. In general, I think it puts more responsibility on retirees to understand the health care market, make those health care dollars stretch longer, plan for the future in a way they may not have had to think about in the past.

And then finally, the individual market is very local. There are hundreds and hundreds of plans out there, so much choice for retirees to really understand. There wouldn`t be a national plan design or a premium for the entire group to pick from anymore. They really have to figure out what`s right for them at a local level.

MATHISEN: So, in the longer run, John, as you described it, I can see where this is a great thing for the companies. They can say we`re going to give you — I don`t know, pick a number — $2,000 a year to pay for these Medicare supplement Medigap policies, or what-have-you. And they can raise that number very slowly or not at all, even as the premiums for those policies go up.

So, it sounds to me like it`s a good thing in the long run for the company but a very much less good thing for the retiree who wants those benefits.

GROSSO: Well, it may be. I mean, without question, the planned sponsors have complete flexibility to determine each year how their premium subsidies will grow relative to the past. So, that gives them more control. This is pure defined contribution health care for retirees.

But that said, there are many more choices for retirees to pick from. If they have limited choices in the group plan today and their subsidies are capped today, this could actually be a good thing because it gives them more options to stretch those dollars longer, but there are some downsides for retirees to navigate going forward, certainly.

HERERA: John, you mentioned the fact that there is really no national plan. If indeed on the local level these types of exchanges prove to be successful, do you anticipate, though, that the discussion will really take on some serious nature of a national plan?

GROSSO: Well, that`s interesting, the Medicare advantage plans are local. They`re county specifics. You have a very disparate footprint nationally. You don`t have national players in all markets. The same general goes for the individual Part D programs, the Medicare prescription drug program, and Medigap is very stage specific.

So, you`re going to have a patch work, a quilt of plans out there for the foreseeable future that retirees are going to have to navigate on a county by county basis.

MATHISEN: All right, John, thank you very much for explaining it to us. It`s complicated. We appreciate your help. John Grosso, consultant with Aon (NYSE:AON) Hewitt.

GROSSO: Thank you.

HERERA: Coming up, the next big wave of IPOs, which companies are getting ready to sell their shares to the public. We have some names that should be on your radar.

But first, a look at today`s most active stocks on the New York Stock Exchange.

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MATHISEN: A few companies are looking to begin selling stock to the public, the golf course operator Clubcorp Holdings filed paperwork for an initial stock offering today, looking to value the company at upwards at $1.1 billion.

HERERA: And also filing for an initial public stock offering today was Aramark Corporation. It`s the food service company found in schools and hospitals, businesses and sports arenas, and it helps to raise some $100 million from new investors.

MATHISEN: Well, many of the companies looking to jump-start an initial stock offering are small, but growing technology start-ups and the place for those entrepreneurs to sell investors on what their products offer and how investors can make money is at the annual TechCrunch Disrupt conference in San Francisco.

Julia Boorstin is there for us as some ambitious start-ups make their pre-IPO pitches.

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JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Some 3,000 attendees will cruise the halls and presentations at TechCrunch Disrupt, perusing the more than 230 startups here. But the real attractions are the CEOs of fast growing companies, expected to file to go public in the next year for the likes of Twitter CEO Dick Costolo and the CEOs of two hot storage companies,

Dropbox`s Drew Houston and Box`s Aaron Levie, this could be one of their last opportunities to make high profile public statements about their company`s growth prospects before regulatory filings prevent them from speaking freely.

KATE MITCHELL, SCALE VENTURE PARTNER: I think some of the things they`re going to want to emphasize are the things that have made IPOs in the class of 2013 do so darn well, what`s their growth rate? How big is their market? How much visibility do we have in their future earnings?

BOORSTIN: Twitter`s Costolo has been emphasizing the company`s success as a partner for big TV advertisers, especially as Facebook (NASDAQ:FB) just today announce new tools for surfacing conversations, taking on Twitter`s ownership of the public conversation space.

DAVID KRANE, GOOGLE VENTURE GENERAL PARTNER: Twitter is the elephant in the room. And I think Dick needs to articulate to people that he is focused, his heads down on the business, and I think he doesn`t need to say a lot to give people the confidence and the enthusiasm that Twitter is trending in the direction that we think it is.

BOORSTIN (on camera): Meanwhile, Box and Dropbox are emphasizing the ground they are gaining on the traditional storage companies and how they`re tipping to the mainstream.

Dropbox CEO Drew Houston stressing the company`s growth to over 200 million users.

DREW HOUSTON, DROPBOX CEO: Just our expanding international, so we just opened offices, an office in Dublin. We just opened up another office in the U.S. in Austin. So, yes, there is a lot going on.

BOORSTIN (voice-over): These companies are part of a trend of IPO activity heating up.

Renaissance Capital IPO Intelligence estimates that in addition the pipeline of 110 companies looking to raise about $31 billion, there are at least 75 companies in the confidential pipeline, estimating at least 70 companies will go public by year end.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin, in San Francisco.

HERERA: Well, that`s going to keep us busy covering —

MATHISEN: Absolutely.

HERERA: All right. That does it for NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herrera. Susie will be back here tomorrow night. Thanks for joining us.

MATHISEN: And thanks from me as well. I`m Tyler Mathisen. Have a great evening. And we`ll see you back 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) 2013 CNBC, Inc.

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