Transcript: Monday, November 4, 2013

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

(COMMERCIAL AD)

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Blackout for BlackBerry? The device maker takes another hit — a tentative takeover deal collapses. Its CEO departs. The stock plunges.

What happens next to the company that put the smart in smartphone?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: And snap, crackle, and no pop. Kellogg (NYSE:K), the world`s largest cereal maker, cuts jobs, restructures, as consumers stop splurging and competition heats up. Now, the company has a new plan to win back all those breakfast dealers.

HERERA: And guilty plea. SAC, one of the largest and most profitable hedge funds in the country, run by Steve Cohen, one of Wall Street`s best known traders, admits to wrongdoing and is set to pay a record fine.

All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, November 4th.

Good evening, everyone. I`m Sue Herera, in this evening for Sue Gharib.

MATHISEN: And I`m Tyler Mathisen. Welcome, everybody.

Well, it wasn`t that long ago that BlackBerry was the envy of the tech world, everybody wanted one of the oh-so-cool smartphones. But that was before Apple`s iPhones and Google`s Android phones, and a handful of other makers offering faster access to the Internet, better cameras and a world of apps, and BlackBerry paid a dear price.

Investors cheered when BlackBerry`s owners waved the white flag, putting all the parts of the company up for sale. Shares saw modest gains and big names did consider buying the company. But now, everything has changed. The company is not for sale anymore. Its CEO is on the way out and its biggest shareholder wants to pump $1 billion more cash into it.

Shares, though, tumbled on the news that there will be no sale, falling more than 16 percent today, to a 10-year low.

So, can Blackberry be saved?

Josh Lipton has the story.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s a dramatic fall from grace for a company that basically created the smartphone craze. Everyone had them at work. But now, Blackberry is a shadow of its former self, with a market cap at just $4 billion. That is a 95 percent drop in just five years.

Big changes announced today. CEO Thorsten Heins will be ousted. In the next weeks, and John Chen will serve as interim CEO. James Faucette of Pacific Crest argues that Heins was really the fall guy for the company`s troubles.

JAMES FAUCETTE, SR. RESEARCH ANALYST PACIFIC CREST SECURITIES: He can get blamed for bad strategic decision. But my suspicion is that the structure was largely locked in place from years and years previous.

LIPTON: Regardless, the question now is, what happens next?

Colin Gillis of BGC says we could still see a so-called take-under, meaning the company sells itself on the cheap below the share price. Another option, a break up, sell off pieces like the patents and messaging service.

Ani Doradala of William and Blair says the company could exit the hardware business and concentrate just on software and services, but the near-term does look challenging, he says.

ANI DORADALA, RESEARCH ANALYST, WILLIAM AND BLAIR: At least in the near term, BlackBerry has very limited options. And they are just two moving parts of the puzzle. But longer term, I think these guys do have the ability to create a niche within the mobile space.

LIPTON: Investors will now look forward to seeing who the new CEO is and what the strategy will be, the questions, how much cash did BlackBerry burn, how many subscribers are left? How fast are people abandoning the platform?

Josh Lipton, NIGHTLY BUSINESS REPORT, Silicon Valley.

(END VIDEOTAPE)

HERERA: Stocks posted some modest gains to kick off the new week, inching closer to last week`s highs. The gains were just enough for all 10 S&P sectors to close up, and the Dow transportation average did close at a fresh all time high.

The Dow finished up 23 points, the NASDAQ was up 14, and the S&P 500 added six.

MATHISEN: Investors were closely following the words of a top Federal Reserve official today. St. Louis Fed President James Bullard said the chances for tapering back the bank`s stimulus plans will increase, along with what he called cumulative progress in the job market.

(BEGIN VIDEO CLIP)

JAMES BULLARD, FED. RESERVE BANK OF ST. LOUIS PRESIDENT: This notion of cumulative progress is the one you want to think about. And we have had cumulative progress in labor markets, and every jobs report that continues to show more jobs being created. And the tick down of the unemployment rate is going to means the probability of a taper goes up.

(END VIDEO CLIP)

MATHISEN: And Mr. Bullard also said the central bank shouldn`t rush to pull back just because inflation is so low right now.

HERERA: Another official from the nation`s central bank is blaming the dysfunction in Washington for the slow economic recovery. In prepared remarks to economists in Australia today, Dallas Federal Reserve President Richard Fisher says an ineffective, fractious and fiscally irresponsible government has, quote, “counteracted the Fed`s easy money stimulus measures.” Unlike the rest of the economy, Fisher said the federal government moves at, quote, “the adapt alacrity of a koala, without being anywhere near as cute”, end quote.

MATHISEN: We know how he feels then.

Meantime, Washington says it needs to borrow more money to keep the government up and running. The Treasury now says it needs to borrow, $32 billion more than forecast for the current quarter, expected to issue $266 billion worth of new debt. The Treasury also says it is expected to issue another $265 billion in debt for the January to march fiscal quarter.

HERERA: Well, with the major stock averages near record highs and so much money going into equities, a lot of money is coming out of bond funds. So much so that now Bill Gross` PIMCO total return fund is no longer the world`s biggest mutual fund, that according to “Reuters.” The total return fund reported $4.4 billion worth of outflows during the month of October, its sixth consecutive month of withdrawals. It`s still, however, the world`s largest bond fund.

MATHISEN: Well, apparently, a lot of people are flowing out of the house in the morning without eating breakfast. So, declining sales of Frosted Flakes, Special K, and Eggo Waffles is forcing Kellogg (NYSE:K), the world`s biggest cereal maker, to cut 7 percent of its workforce. Profits still rose last quarter and shares ended a fraction higher today.

Dominic Chu takes a look now at the reasons for Kellogg`s big job cuts and what the cost savings will mean for the company.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Those job cuts are a result of slowing business at one of the nation`s biggest food companies. Kellogg (NYSE:K), which is home to brands including Corn Flakes cereal, Pop Tarts breakfast pastries and Eggo Waffles, said that the job cuts were part of the broader effort to reduce costs. It expects that the cost cut campaign will result in upfront charges in the range of $1.2 billion to $1.4 billion.

CEO John Bryan said that Kellogg (NYSE:K) is making tough choices about expenses in order to position itself for growth opportunities down the line. The company is dealing with the same headwinds that its competitors are dealing with. They include changing consumer preferences as well as slowing consumer spending.

First, the competition among makers of cold breakfast cereals is stiff. For the most part, the products are different, but not that different.

Second, the American breakfast menu has evolved and become more complex. Just take a stroll down your local grocery store aisle and notice the plethora of granola bars, nutrition bars, protein shakes and countless yogurt varieties. And that`s not even factor in how many breakfast options outside of your home are gaining popularity — think Starbucks (NASDAQ:SBUX), Dunkin Donuts and McDonald`s with its dollar menu. Many Americans are choosing to buy only enough for what they consume shorter term and are reluctant to buy anything more than they really need.

Investors say that Kellogg (NYSE:K) is doing what it has to do to move forward.

SIMON BAKER, BAKER AVENUE ASSET MANAGEMENT: Commodity prices have been coming down. Margins are getting squeezed and squeezed. And companies like Kellogg (NYSE:K) to a large, large overhead and they`ve got to really address it.

CHU: Cost cuts are just part of the story. Now, Kellogg (NYSE:K) needs to figure out how to add a little more snap, crackle and pop to its sales growth story.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

HERERA: Well, another big household name is paying out some big bucks to settle some disturbing allegations. Drugmaker Johnson & Johnson (NYSE:JNJ) has agreed to pay more than $2.2 billion to settle federal criminal and civil charges that it marketed a powerful anti-psychotic drug called Risperdal to kids, seniors and disabled patients, even paying kickbacks to physicians to push the medications for uses not approved by the FDA.

MATHISEN: Well, another massive settlement will be paid by the hedge fund SAC Capital, $1.8 billion to resolve criminal and civil claims for insider trading.

Kate Kelly has more on the big deal and what it means for SAC Capital and its billionaire founder Steven A. Cohen.

(BEGIN VIDEOTAPE)

KATE KELLY, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Today`s settlement between government prosecutors and the hedge fund SAC Capital is significant for a number of reasons. For one thing, the size of the fine, the $1.8 billion and the guilty pleas to four counts of securities fraud and one of wire fraud are unprecedented in nature.

But a key bit of context here is that SAC is truly a major player, managing $16 billion at its peak about a year ago, employing a thousand people. And by some people`s reckoning, accounting for 2 percent to 3 percent of the stock markets trading value on any given day. Now, the settlement papers have been filed, two federal judges must approve the deals and schedule procedural hearings, including one where representatives of SAC will actually plead guilty.

Once that happens, SAC will begin the process of returning all the money it manages from outside investors, which could take up to two years and will be monitored by a government-approved compliance officer. After that, SAC is free to become a so-called family office, managing money belonging to founder Steve Cohen and certain employees and family, as well.

Cohen, by the way, is a notable omission in today`s case. And a number of reporters today asked U.S. Attorney Preet Bharara why Cohen hadn`t ultimately been charged. Bharara assured everyone that the insider trading investigation would go on. And he also quoted Gordon Gecko.

PREET BHARARA, U.S. ATTORNEY, SOUTHERN DISTRICT OF NY: Greed sometimes is not good. And there are at least 75 convicted insider trading defendants who today would likely agree. But the individual guilt is not the whole of our mission. Sometimes, blameworthy institutions need to be held accountable, too. No institution should rest easy in the belief that it is too big to jail.

KELLY: Tough words indeed for both SAC and its founder.

For NIGHTLY BUSINESS REPORT, I`m Kate Kelly, in New York.

(END VIDEOTAPE)

MATHISEN: Steven Cohen is not just a high-profile trader, by the way. He`s also an avid art collector, and some of his works, along with many others, are up for auction this week at Sotheby`s and Christie`s. We`re going to bring you the details on this fall`s auction in the art world a little later in the program.

HERERA: Also still ahead, as Twitter prepares to start to trade as a public company, which other tech companies might be next?

(MUSIC)

HERERA: Interest is growing in Twitter`s initial public stock price offering, and so is the price of its share. Today, Twitter boosted the range of its IPO price to between $23 to $25, up from a previous plan to offer 70 million shares from between $17 to $20 apiece.

MATHISEN: Well, despite that boost in the expected price range, interest in owning Twitter stock may be waning just a bit. A new A.P./CNBC poll found that nearly half of potential investors fear that Twitter will be a bad investment, while only 36 percent think it will be a good investment, and only 35 percent of investors think Twitter will be successful five years from now.

Well, about half think that the rival, Facebook (NASDAQ:FB), will be successful in the five years.

HERERA: Well, Twitter is certainly the next hotly anticipated IPO, with shares expected to price Wednesday night and start trading on Thursday. But after Twitter, what`s the next technology company to get talked up in Silicon Valley?

Jon Fortt takes a look.

(BEGIN VIDEOTAPE)

JON FORTT, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): As the business world prepares for a Twitter IPO, which we expect to price in just a few days, lots of questions about what kinds of tech companies might be next in the pipeline. What we probably won`t see are a lot of more consumer-facing companies like Twitter, which could raise more than $1.5 billion in its IPO. Many in the category that includes names like Fab and Uber aren`t exactly chomping at the bit, says venture capitalist Scott Sandell, general partner at NEA.

SCOTT SANDELL, GENERAL PARTNER NEA: I think we`ll see fewer consumer companies, they`re waiting longer. I mean, Dropbox is a good example, if you know the underlying fundamentals of that story, they could have been a public company a while ago and they`re obviously waiting until they`re further along in the cycle. There`s no reason for them to be public, for example.

On the other hand, there`s just a wave of products and infrastructure IPOs coming.

FORTT: Why? A lot of those companies have done well lately, including Work Day and Splunk. So, the bars perhaps are a bit lower, at least for now, for investors to get excited about what they`re selling.

Sandell named MuleSoft and CloudFlare as a couple of NEA companies that fit the profile. Box is another Silicon Valley enterprise start-up we`ll be hearing a lot more from in the next year.

So what about the consumer names? Many like Dropbox and Evernote seem focused on working the kinks out of their business models, since they`re able to find plenty of money from private investors. And younger companies like Wanelo that are pretty far from going public, still paying attention to revenue.

DEENA VARSHAVAKAVA, CEO, WANELO: Purchase intent is right there because the platform is explicitly focusing on shopping. Our users basically are saying, well, why would I go? Where else where I get all of the products right here, right, all of the stores are here? And we do know that we convert really well. We can really (INAUDIBLE) but we know the conversion side.

FORTT: They might not be overly anxious to go public, but you can bet that if Twitter goes well, there will be a lot more pressure on those consumer names to take the plunge.

For NIGHTLY BUSINESS REPORT, I`m Jon Fortt.

(END VIDEOTAPE)

MATHISEN: Well, whether it`s another tech IPO that grabs investors` attention or not, the IPO market is the strongest it has been since the financial crisis hit. But how do you know when to buy or not to buy into an initial public offering?

Joining us now to discuss IPO basics and more is Jay Ritter. He`s Cordell professor of finance at the University of Florida.

Professor Ritter, welcome. Good to have you with us.

Let`s just get one thing straight here at the top. Who can get in on an IPO and who can`t?

JAY RITTER, UNIVERSITY OF FLORIDA CORDELL PROF. OF FINANCE: IPOs are generally allocated to the most profitable of brokers, whether it`s an institution or an individual. If you`re not a profitable customer, it`s very difficult to get in on the most desirable IPOs.

HERERA: Professor, though, if the company goes public and then it trades, say, for a day or two, how do you know whether or not it`s a good idea to get into something that`s so newly issued?

RITTER: You don`t. There is a lot of risk with young companies. Twitter, for instance, might be very successful. Or it might have temporary success like BlackBerry, and then run into some big problems.

With any individual company, especially a young technology company, it`s very difficult to forecast the future.

MATHISEN: What are the facts with respect to whether IPO`s trade typically higher, six months, a year, two years, than they do on their opening day or lower?

RITTER: On average, IPOs do jump up on the first day of trading, although it doesn`t happen with all of them. But then once they have started to trade, they`re basically no different than any other stock. The only types of IPOs that consistently under-perform are companies that are very early in their life cycle.

But a company like Twitter, which has already demonstrated that it can have annual sales of at least $500 million has demonstrated that it`s got a product that`s generating revenue, even if it hasn`t generated profits yet.

But just like any other company, whether it`s Apple (NASDAQ:AAPL) or Blackberry, it could go up. It could go down.

MATHISEN: Yes, professor it seems to me that not all IPOs are created equal in that there are a number of companies that have come public, where the insiders, those who work at the company, those who founded the company, hold an extraordinarily high number of those shares. I would assume that that`s very important to pay attention to, because I think a lot of people think that once a company goes public, that all of those shares are offered to the public.

But that`s not always the case.

RITTER: Correct. Usually, it`s the company issuing some or all of the shares, as in Twitter`s case. But then, roughly six months after the company goes public the pre-issue shareholders that did not sell in the offering — whether it`s a private firm or a venture capital firm or employees or executives — they then typically start selling some of their shares. In the case of top executives, they typically sell some, but by no means all.

MATHISEN: Let`s say I`m not one of those favored customers, profitable customers and I can`t get part of the allotment of the initial offering shares, should I try and buy into an offering later on its first day of trading, or maybe on its second day. Should I feel like that`s not that big a disadvantage?

RITTER: It`s no different than buying any other stock once it starts trading. There is a danger with companies such as Twitter, where investors have built in very optimistic expectations. The company basically has to execute or it`s going to be a disappointing investment.

MATHISEN: All right. Professor Ritter, thank you very much for being with us. Jay Ritter is Cordell professor of finance at the University of Florida.

HERERA: Well, one big tech executive is speaking out against allegations of spying into corporate databases by the National Security Agency. Google`s executive chairman, Eric Schmidt, said widespread U.S. government spying by the NSA on the company`s data centers, if true, would be outrageous and potentially illegal.

Schmidt told a Hong Kong newspaper that his company has registered complaints with the NSA, President Obama and with members of Congress.

MATHISEN: Well, a merger to create one of the country`s big home builders is where we begin tonight`s “Market Focus”.

Tri Pointe Homes is buying Weyerhaeuser`s homebuilding unit for $2.7 billion. The transaction will give Tri Pointe access to land in key markets and make the company one of the 10 biggest markets in the United States. Shares of Tri Pointe rose 5 percent to $15.16. Weyerhaeuser (NYSE:WY) up a fraction, to $30.37.

Shares of Sysco (NYSE:SYY) rose, after the company reported a better-than-expected quarterly profit. The food distribution giant faced higher food costs and expenses, which brought profits down from last year. But Sysco (NYSE:SYY) still did manage to beat earnings and revenue estimates. The stock popped more than 4 percent to $33.96.

HERERA: Activist investing is certainly working for Icahn Enterprises (NYSE:IEP). The firm run by billionaire Carl Icahn reported net income increased more than 5 times because of profitable investments. Icahn said now is the time to be an activist investor because of local rates and mediocre management at U.S. companies.

Shares of Icahn Enterprises (NYSE:IEP) rose almost 7 percent to finish at $108.95.

And a comeback in the residential housing market helped Vulcan Materials (NYSE:VMC) post an earnings beat. The construction material company`s net income more than doubled in the third quarter. Revenue and earnings per share also trumped consensus. The stock rose more than 7 1/2 percent to $57.78, making it the best performing stock in the S&P 500 today.

Lululemon`s problems with overly sheer yoga pants resurfaced today. The high end yoga apparel company is being hit with new complaints that some of its pants are see-through, shares of Lululemon tumbled last spring, when the company had to recall its sheer leg wear. The new complaints, though, didn`t hurt the stocks today. Shares rose 2 percent to $69.33.

MATHISEN: And we`ve all heard the stories about the problems with the healthcare.gov Web site. And now, a new poll shows what people`s experiences with the online insurance marketplace places had been like. The Commonwealth Funds says 65 percent of adults eligible to new insurance plan say they are aware of the marketplaces, but only 17 percent have actually logged on to check out the options.

Also, roughly one in five investors to those sites, according to the poll, actually enrolled in a new plan.

HERERA: For anyone planning on visiting as a Sears (NASDAQ:SHLD), or a K-Mart store to do some holiday shopping, you`re in luck. But you may miss out on the turkey. But chains announced that they will open their doors at 6 a.m. local time on Thanksgiving Day and stay open round the clock through 11:00 p.m. on Black Friday.

MATHISEN: And coming up, the big money behind some of the most sought-after pieces as the fall art auction season gets underway.

(MUSIC)

HERERA: The Justice Department is looking to avoid a trial scheduled to begin later this month that`s aimed at stopping the proposed merger of U.S. Airways and American Airlines. U.S. Attorney General Eric Holder says he`s currently in talks with both carriers, pushing for them to divest some of their facilities at key airports throughout the country, as a condition for dropping his federal lawsuit.

As an example, in its complaint to stop the merger, the Justice Department says the combined airlines would control 60 percent of the takeoff and landing slots at Washington`s Reagan National Airport. Shares of both airlines finished higher. American Airlines parent AMR (NYSE:AMR) trades over the counter.

MATHISEN: Well, if you can`t afford to fly, driving just got a little cheaper. The price of gasoline is now at its lowest level of the year, averaging $3.25 a gallon nationwide. And AAA reports that 35 states now has stations posting prices less than $3 a gallon.

HERERA: Honda voluntarily recalling 344,000 Odyssey mini-vans to fix a software glitch in the stability control system. The mini-vans from model years 2007 and 2008 can experience a build-up of pressure in the braking system, leading to sudden and unexpectedly hard stops without the brake lights going on.

MATHISEN: And finally tonight, it`s fall. That`s the busiest time of the year for high-end art auctions, two of the nation`s biggest auction houses, Sotheby`s and Christies, held previews for upcoming auctions.

And Robert Frank takes a look at what`s up for bid and who`s behind some of the most sought after pieces.

(BEGIN VIDEOTAPE)

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, it`s the auction season again in New York City. The big auctions this week and next expected to top more than $1.6 billion that would surpass last year`s total of $1.2 billion.

So what`s selling?

(voice-over): As far as top price paintings, it`s wall to wall Warhol`s`.

Christie`s is selling off its Andy Warhol Coke bottle. Estimate is between $40 million and $60 million. What makes this special is Warhol actually painted the painting by hand, rather than done with a silk screen.

Sotheby`s also has Warhol`s “Silver Car Crash”. That`s expected to sell for more than $60 million, the only one of four of its kind that`s still in private hands.

And list number one, that`s being sold by SAC`s Steve Cohen for between from $20 million and $30 million.

There are some non-Warhol`s at the top, Gerhard Richter, Jean-Michel Basquiat, (INAUDIBLE), are some big brands to watch. Christie`s is selling this Francis Bacon triptych from between $60 million and $80 million, but it could sell for a lot more.

And there is another Barnett Newman coming under the hammer. Remember the Newman that sold for $43.8 million in the spring sale? Well, this one could set between $18 million to $25 million.

And my favorite of the auction, a balloon dog. Christie`s is selling this Jeff Koon`s Balloon Dog, this one in orange, from between $35 million and$55 million. It`s 12 feet tall and being sold by Peter Brant.

We`ll see if the market whom some say is a bubble, will keep inflating.

For NIGHTLY BUSINESS REPORT, I`m Robert Frank.

(END VIDEOTAPE)

MATHISEN: You know, I`d buy the Balloon Dog, but I don`t have a room for it in my house.

HERERA: Why not the front lawn?

MATHISEN: Well, I guess I could put that on my front lawn, the neighbors would love that, the Balloon Dog.

HERERA: Plus, the price is not actually —

(CROSSTALK)

MATHISEN: You`d have to dust it, though. And clean it.

HERERA: I know, I`m more of an impressionist kind of girl, if you will.

MATHISEN: Well, it`s interesting to see what those prices are on some of those.

HERERA: Oh, yes. It`s going to be very telling.

MATHISEN: And how hot Andy Warhol is after all these years.

HERERA: Yes.

All right. That`s it for NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herrera, in for Susie. Thanks for joining us.

MATHISEN: And I`m Tyler Mathisen. Thanks from me as well. Have a great evening, everybody. 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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