Transcript: Friday, February 21, 2014

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

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TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: New chapter? Barnes & Noble (NYSE:NE) (NYSE:BKS) gets a takeover offer from a private equity firm and shares spike. So what might happen next? And why the interest in this troubled business?

Home sales slide to an 18-month low. But it`s not the winter weather that`s stalling the housing recovery, it is something else.

And bailout benchmark. Taxpayers have recouped all of the money they gave to the mortgage companies Fannie Mae and Freddie Mac during the financial crisis. Details on this milestone five years in the making.

All that and more tonight on NIGHTLY BUSINESS REPORT for Friday, February 21st.

Good evening, everyone. And welcome. I`m Tyler Mathisen. Susie Gharib has the night off.

Well, to paraphrase Mark Twain, reports of the death of the big bookstore may have been greatly exaggerated.

Borders may have closed, so did Walden books but Barnes & Noble
(NYSE:NE) (NYSE:BKS) has survived. Its market value has steadily fallen and it`s struggled to take on the internet and e-books but it is still here. It`s survived by changing and adapting and being at the forefront of the e-book revolution with its Nook e-reader and now, takeover offer for that beaten down chain, along with its Nook unit, from a little known investment firm called G Asset Management.

Initially investors sent shares of the 128-year-old book seller sharply higher. But at the end of the session, shares had come back a little bit. They still ended up by a solid 5 1/2 percent.

Courtney Reagan joins us now with more on the takeover offer and what it could mean for America`s biggest book seller.

This really sort of came out of nowhere, at least it did today.

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes, most certainly, Tyler. Barnes & Noble (NYSE:NE) (NYSE:BKS) has gone through numerous changes over the last few years. Today`s news signals it may not be done with its metamorphosis quite yet. Private equity firm G Asset Management has made an offer to acquire the majority stake in the bookseller, for $22 per share, marking a 30 percent premium to the share price at the time of the offer.

And that`s not all. The private equity firm has alternatively proposed to acquire the majority stake in Barnes & Nobles nook segment, currently part of the larger company that was separate business unit, and responsible for only about 6 percent of total revenue. Microsoft
(NASDAQ:MSFT) owns about 30 percent of the Nook business right now.

Barnes & Noble (NYSE:NE) (NYSE:BKS) confirms it has received the offer but wouldn`t comment any further.

G Asset Management previously made a $20 per share offer for Barnes & Noble (NYSE:NE) (NYSE:BKS) in November, though that wasn`t known until today.

Well, the stock did soar in the news, and retreated as Wall Street speculates whether or not G Asset Management has the wherewithal to close the deal.

Janney Capital`s David Strasser points out several hurdles to the deal
— one of which is winning over the handful of large individual investors who own about a third of the company, including chairman, Leonard Riggio.
Strasser also says it`s not known how secure the financing for the deal is or, quote, “how real” the offer even is.

Barnes & Noble (NYSE:NE) (NYSE:BKS) reports earnings on Wednesday morning, Tyler. So, we may hear a little bit more or at least get a viewpoint into what —

MATHISEN: So, let`s make sure I understand this. They`re willing to buy either the retail business, the stores, or the nook? Would they buy both?

REAGAN: It — well, if Barnes & Noble (NYSE:NE) (NYSE:BKS) agrees to the deal to buy the entire company, Nook is part of that.

MATHISEN: OK.

REAGAN: If they say no to that, it seems they`re willing to buy just the Nook business.

MATHISEN: And we haven`t heard from Microsoft (NASDAQ:MSFT), which you said is a big shareholder in the Nook business.

REAGAN: Exactly.

MATHISEN: That little part of it.

Are they after the retailing? Or are they after the real estate? Do we know?

REAGAN: We don`t know right now at all. It does seem to be a little out of nowhere, like you mentioned earlier when we were beginning to talk about this. We`re not exactly sure where they see the value, though. They have brought up the fact that they believe the Nook business is worth more than Barnes & Noble (NYSE:NE) (NYSE:BKS) is giving it at this point.

MATHISEN: And has G been heard of?

REAGAN: No.

MATHISEN: Heard from?

REAGAN: Has not.

MATHISEN: No?

REAGAN: Has not at all.

MATHISEN: I guess it will develop over the next few days.

Courtney Reagan, thanks very much. Have a great weekend.

REAGAN: Thank you.

MATHISEN: All right. Moving on now to existing home sales which declined more than 5 percent in January. They fell to the lowest sales pace in 18 months.

But don`t blame it all on the bitter cold and snowy weather. A slew of negative data about the housing market tells a different story.

Diana Olick has more.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It`s not this. It`s this — stalling the housing recovery and raising red flags for the spring season.

DAVID FOGG, CALIFORNIA REALTOR: I`m having regular and ongoing conversations with my clients about the higher interest rates and the higher prices of homes.

OLICK: All cash investors push prices higher nationally by double digits last year. Add to that, a sharp jump in mortgage rates, and suddenly potential buyers are experiencing affordability shock.

GLENN KELMAN, RED FIN CEO: It`s lions and tigers and bears. It`s everything. I think affordability is one issue. We need plenty of home buyers who were interested last year but now concerned about how much more they`d have to pay.

OLICK: How much more? Twenty-one percent according to a new report from RealtyTrac. The online sales and analytics company looked at the average monthly payment on a median-priced home using 20 percent down on a 30-year fixed rate loan.

With a 10 percent rise in home prices and rates going from around 3
1/2 percent to 4 1/2 percent, that payment goes from $714 a month to $865.

The payment jump is far worse in much of the West where sales actually fell the most in January. They fell the least in the frozen Northeast.

DAVID ESCOBAR, HOME BUYER: Definitely been frustrating. And we`ve had to revisit our budget.

OLICK: David Escobar is competing with all cash buyers in the Los Angeles area.

ESCOBAR: The cash buyers are the ones that are sought by the buyers and tend to win in those deals.

OLICK: All cash made up more than a third of January home sales, while first timers dropped to their lowest share on record, just 26 percent of buyers. Historically, they`re up around 40 percent.

KELMAN: Now you have folks who are very wary of what happened between
2008 and 2012. And they`re not going to go back to Rockville. They`re not going to buy a home and feel like a sucker.

OLICK (on camera): This winter has taken some of the heat out of price gains, and more homes are trickling onto the market. But demand is the wild card as potential buyers will have to weigh what they want against what they can now afford.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.

(END VIDEOTAPE)

MATHISEN: To read more about home prices and affordability head to our Web site, NBR.com.

But it wasn`t long ago during the depths of the housing crisis that Uncle Sam had to bail out the mortgage giants Fannie Mae and Freddie Mac for a combined $187 billion. But that was then. Now, after the housing market recovery and eight straight quarters of profits and big ones, Fannie Mae is ready to repay its bailout loan in full with Fannie`s March payment the two companies will have sent more than $192 billion back to the Treasury.

John Harwood joins me now from Washington with more on the good news from Fannie, what it means for the treasury`s coffers and what is next for Fannie and Freddie.

John, this was — this was not a surprise, I suppose, but I guess a welcome sign post.

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: You know, Uncle Sam is loving it right now. They`re getting big fat checks from these entities that they took over a few years ago that sucked a whole lot of money out of the Treasury.

And now, as some one-time events are materializing, especially as they return to profitability has caused Fannie and Freddie to ramp up the value of some tax benefits that they had before, that they had not counted on repaying. They`ve also gotten some settlements with other counter parties in the financial system. The bottom line is that this is beneficial to the Treasury right now, but we still got a debate in front of us, Tyler, on what to do with these agencies long term.

The administration says just because times are good doesn`t mean we shouldn`t figure out a different and restructured role for the government in the housing market.

MATHISEN: So, what is likely to happen, John, to these companies? Is the taxpayer`s stake likely to, in one way or another, be eliminated at some point? What`s going to happen?

HARWOOD: Not entirely, but it`s going to be changed. The question is, when can we overcome the very large philosophic divide we`ve got between Republicans and Democrats, liberals and conservatives? It`s playing out here, as it does on the budget and other issues?

The House has got a bill which would very strongly take the government out of this market and basically turn most functions almost entirely over to the private market. The administration, bipartisan groups in the Senate say, no, we should have a mortgage modular system. You have one part that preserves some of the government functions to try to advance the societal goals we have for people to own homes, first-time home buyers, that sort of thing, but also still put in private market hands the liquidity functions, the securitization functions.

That is a divide that is probably too great to be bridged in this Congress, but the conversation`s going to continue over the next several years. And I think Washington will come to consensus. The question is, is it in Obama`s presidency or afterwards?

MATHISEN: And it`s been a debate that`s been going on for years and years as you point out, John. Very quickly, is there an argument given the fact that this is — these are profit-making enterprises for the federal government to hold on to them and bring in those profits?

HARWOOD: There is an argument for that. And it`s not so much stated out loud. It`s more by inertia. As long as they`re writing checks why do anything.

But I think that both parties, neither one is going to be comfortable long term withholding onto these things. They want to get it back to the private market. The only question is on what terms?

MATHISEN: All right. John Harwood, thanks very much. Have a great weekend.

Well, another financial company bailed out by the company is reportedly preparing to start selling stock to the public once again. Ally Financial, the lender once known as GMAC (NYSE:GJM) when it was part of General Motors (NYSE:GM), is expected to have an initial public stock offering as soon as next month. Ally is the last of the nation`s big banks that`s still partly owned by the Treasury. It has a 37 percent stake.

On Wall Street, stocks ended slightly lower today drifting to the down side in the final hour of trading, closing at the lows of the session on this options expiration Friday. The Dow was down 30 points today, and ended just a bit lower for the week. The NASDAQ lost 4 points. It still managed to touch a more than 13-year high during the session and ended higher for the third week in a row. The S&P lost three today.

Transcripts from more than a dozen 2008 meetings of the Federal Reserve were released today, giving a rare glimpse into how the central bankers agonized over how far to go to stop the financial crisis from getting worse, including whether to authorize a bailout of Lehman Brothers or let it fail as it did.

One passage from September of 2008 quotes former Chairman Ben Bernanke saying, quote, “Events are happening quickly, and we don`t have a set criteria. We don`t have fiscal backstops. And we don`t have clear congressional intent.”

Another quote, Big Ben on that same day says, “In each event, each instance, even though there is this sort of unavoidable ad hoc character to it, we are trying to make a judgment about the costs”.

Well, the state-appointed emergency manager of Detroit submitted his blueprint for emerging from bankruptcy today. The plan to restructure the Motor City`s $18 billion of debt includes significant cuts to city workers` pensions and slashing payments to bond holders. But it also includes investments to reduce crime, demolish abandoned properties and attract new residences and businesses.

Well, just ahead, our market monitor tonight is recommending some stocks that he says will gain at least 10 percent this year. We`ll talk to him straight ahead.

(MUSIC)

MATHISEN: Some of the nation`s biggest cable TV and broadband providers are now battling another challenger to their subscriber numbers and their bottom lines. It`s Google (NASDAQ:GOOG). And its ultrahigh- speed Internet service may be coming to your city relatively soon.

Josh Lipton now with more on the broadband war.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Take a look at this map. Do you see your city on there? If so, then you could be getting Google (NASDAQ:GOOG) Fiber. That`s super fast Internet service that allows you to surf the web a lot faster.

Google (NASDAQ:GOOG) is now talking to officials from nine metro areas around the country to talk about what it would take to bring them Google
(NASDAQ:GOOG) Fiber. That potentially means invading the territory of phone and cable giants such as Verizon (NYSE:VZ), AT&T (NYSE:T), Comcast
(NASDAQ:CMCSA) (NYSE:CCS), and other broadband providers.

DONNA JAEGERS, CFA, D.A. DAVIDSON & CO.: We don`t think Google
(NASDAQ:GOOG) really wants to roll out Fiber to every home in the U.S. that would be a huge expenditure. But just by threatening to, they sort of incent the telecom and cable companies to speed up their offerings. So, either way Google (NASDAQ:GOOG) wins.

LIPTON: Google (NASDAQ:GOOG) will soon hook up customers in Austin, Texas, with its high-speed internet service. But the competition isn`t sitting idle. AT&T (NYSE:T) already offers Austin residents its own high- speed service.

Analysts don`t think Google (NASDAQ:GOOG) poses a serious near-term threat to its competitors. It takes time and a lot of money to deploy Fiber networks. But Google (NASDAQ:GOOG) is upping the ante. It may force rivals to keep spending money to upgrade their networks.

And for Google (NASDAQ:GOOG), it`s all about consumers having a fast speed Internet experience.

JAEGERS: Given that Google`s main profit area is advertising, a faster cable would allow them to do more video advertising and just figure out new applications that they could sell to consumers over that faster pipe.

LIPTON: Cost is another consideration. Google (NASDAQ:GOOG) doesn`t break down what it`s spending on Fiber, but analysts say it has already figured out how to turn Fiber into a real business.

KEN SENA, EVERCORE: I don`t think you can expect for them to come to Manhattan anytime soon, because I think the costs there would just be too great. But I do think that Google (NASDAQ:GOOG) is finding a way to make this business actually run fairly break even.

LIPTON (on camera): Everybody agrees that blazing fast Internet is the future and the battle between Google (NASDAQ:GOOG), AT&T (NYSE:T), Verizon (NYSE:VZ) and Comcast (NASDAQ:CMCSA) (NYSE:CCS) is just getting started.

Josh Lipton, NIGHTLY BUSINESS REPORT, Silicon Valley.

(END VIDEOTAPE)

MATHISEN: And Comcast (NASDAQ:CMCSA) (NYSE:CCS) is the parent company of CNBC, which produces this program.

Dish Network saw its fourth quarter profit jump 38 percent as it generated more revenue per user, and that is where we begin tonight`s “Market Focus”.

The satellite TV company added subscribers to both its pay TV and broadband services, and separately Dish`s CEO strongly denounced the proposed merger between Comcast (NASDAQ:CMCSA) (NYSE:CCS) and Time Warner
(NYSE:TWX) Cable. He said it will cause a, quote, “seismic shift” in the media business and put pressure on everybody in the industry.

Shares of Dish up 1 1/2 percent to $57.92.

Under Armour (NYSE:UA) will keep making uniforms for the U.S. Olympic speed skating team until the year 2022, despite recent controversy. Last week, we told you that the U.S. speed skating federation requested to switch the designer of the team`s Under Armour (NYSE:UA) suits because of the skaters` poor performance. The athletic gear maker CEO said putting the blame on his company was unfair.

(BEGIN VIDEO CLIP)

KEVIN PLANK, UNDER ARMOUR CHAIRMAN & CEO: We`re going to put a new plan in place and we`re going to come back in four years and in eight years, and, you know, America will hopefully be on the podium where it rightfully belongs.

(END VIDEO CLIP)

MATHISEN: Shares rose on news of the deal, up 5 percent to $112.68.

Shares of Hewlett-Packard (NYSE:HPQ) reversed course after rallying on last night`s relatively upbeat results. The company beat on both the top and bottom lines showing signs of turn around progress. But some analysts are now concerned about HP and whether it will be able to sustain that momentum. Part of the worry has been a decline in the company`s PC unit, but revenue increased last year.

And CEO Meg Whitman says demand is still there.

(BEGIN VIDEO CLIP)

MEG WHITMAN, HEWLETT-PACKARD CEO: The market is definitely getting better. And I think it`s a couple of reasons. There is the Windows XP refresh which we capitalized on well, and also I think business is understanding and employees are understanding they may want a tablet but they also need some of the more traditional compute devices to get their work done, that is going to be required in this world of big data and analytics.

(END VIDEO CLIP)

MATHISEN: Still, the stock did fall today more than 1 percent, to $29.79.

And Starwood Hotels is planning to return more cash to shareholders through dividends and stock buybacks that. That after the company realized
$500 million in net cash from a recent project. The parent of Sheraton and Western Hotels will pay investors a new regularly quarterly dividend of 35 cents a share.

The company also issued a special dividend paid over the next four quarters. Shares rose today, nearly 2 percent to $80.10.

Our market monitor tonight says he is sticking with high-quality, large cap names in this relatively more volatile stock market environment.
He`s Ed Cowart, portfolio manager at Eagle Asset Management.

Ed, welcome. Welcome back. Good to have you with us.

Give me your overall view of the market today and after a rough start to the year but up pretty good February overall.

ED COWART, EAGLE ASSET MANAGEMENT PORTFOLIO MANAGER: Well, sure. And thanks for having me on, Tyler.

I guess you could say it`s been a rough start to the year. But if a person had gone to sleep the first of January, just woke up today after a seven-week nap looked at the market and saying really nothing much had happened, because we are after all within about 4 or 5 points of the close on the first of January.

So, as we all know, those of us who have been awake is we had a pretty scary plunge in the first week of February. Then, a rally, which seems to me very much of a kind of a type of rallies that we`ve had for the last couple of years. There`s some event out there. In this case, it was concern about the emerging markets.

MATHISEN: Right.

COWART: Knocks the market down very quickly. And then we get a rally right back.

MATHISEN: Quick thought on how the market may evolve over the next 10 months.

COWART: Well, I think that most of the factors that determine stock prices and stock direction are positive. We have corporate profits at an all-time high. The fourth quarter actually saw some acceleration in corporate profits.

The Federal Reserve, although this is not their purpose, it wasn`t why they developed the programs they did. The objective outcome has been very supportive to asset prices.

MATHISEN: All right. Let`s get to some of your stock picks, beginning with Microsoft (NASDAQ:MSFT). Make the case for it, quickly.

COWART: Well, the story here is a new management who is going to take a look at this very complicated, very involved technical company, refocus it and begin to squeeze not great growth out, but more growth than we`ve seen lately.

Plus there is a good opportunity to return cash to shareholders. We have on the board, I would say a more quiet activist who I think is going to push the company in that direction.

MATHISEN: And who is that? Who is that?

COWART: It`s value track is the name of the company who has a little less than a 1 percent stake in Microsoft (NASDAQ:MSFT), and who has been instrumental in kind of getting the company moving, I believe, in the direction of returning cash to shareholders.

MATHISEN: All right. Let`s get —

COWART: Twenty percent dividend increase.

MATHISEN: Let`s get to your next two in the minute we have left.

Number one is LyondellBasell and the other is Emerson Electric (NYSE:EMR). Give us a double play on those two.

COWART: Yes, the LyondellBasell, the story there — this is a chemical company. They make plastics. They make precursors for plastics.
They are a real beneficiary of low-cost natural gas in the U.S. European competitors are being sourced at rent at $110. On an equivalent basis, Lyondell`s feed (ph) stock costs about $30. So, it`s a tremendous advantage for this company.

MATHISEN: And Emerson?

COWART: Emerson — yes, Emerson is a very well-run industrial technology company. Everything they do is oriented towards taking costs out of the manufacturing process. Again, both of these companies have raised their dividends consistently over the years. We think they`re going to continue to return cash to shareholders.

We think that in a world that`s constrained for income, that all three of these companies are a way that you can have an above average dividend yield going in but you can grow that yield as well.

MATHISEN: Do you have any disclosures to make on any of those companies, Ed?

COWART: Well, we own all three of those companies in our growth and income fund, Tyler. And I own shares in that fund.

MATHISEN: All right. Thanks very much, Ed. Have a great weekend.

Ed Cowart —

COWART: OK. Thank you.

MATHISEN: He`s portfolio manager at Eagle Asset Management.

And when we come back, the bitter cold is creating challenges for shippers carrying everything from heating oil to grain. Scott Cohn takes a look at the impact on one of our nation`s most vital shipping routes.

(BEGIN VIDEO CLIP)

SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT: See that ice? It can turn a one-day cargo voyage on the Great Lakes into a week, and time is money. We`re going to show you what they`re doing about it, coming up.

(END VIDEO CLIP)

(MUSIC)

MATHISEN: The railroad industry is making some changes after a string of deadly derailments and fires. The American Association of Railroads said that members that move oil by rail have agreed to new safety measures when carrying crude, including slowing down in high traffic and urban areas and doing more track inspections.

A setback for drought-stricken farmers in the Golden State, and likely for prices at the grocery store. Because of worsening drought conditions throughout California, federally subsidized irrigation water pumped to many farmers in the state`s Central Valley, will now be completely cut off.
California grows nearly half of all fruits and vegetables consumed in the United States.

Cold temperatures have been so severe this winter that the Great Lakes are almost completely frozen over, something that hasn`t happened in two decades. And the potential economic impact is huge.

Scott Cohn reports from aboard one of nine U.S. Coast Guard cutters trying to keep those vital waterways open.

(BEGIN VIDEOTAPE)

COHN (voice-over): Seven-forty-five a.m., aboard the U.S. Coast Guard cutter Hollyhock. The officers are getting their first briefing of the day.

Ice forms every year on the Great Lakes, but rarely as much as this year. They`re nearly 90 percent frozen over. Twenty thousand tons of cargo needs to get through the lakes in the winter months alone. Coal, fuel and iron ore to make steel.

The Coast Guard focuses on choke points like this, the St. Clair River, a key stretch of 41 miles on the route between Lake Huron and Lake Erie. The ice here is up to two feet thick.

LT. CMDR. JUSTIN KIMURA, U.S. COSAT GUARD: Our crew has been working hard to do our best to keep the waterways open.

COHN: Lieutenant Commander Justin Kimura is the ship`s captain.

KIMURA: We`re working longer hours, using our ships a lot more. The amount of ice is more than I`ve ever seen in my career.

COHN: Hollyhock has a crew of about 50, and they`re going nonstop.
The Coast Guard has already logged more than 10 times the number of hours it`s spent on Great Lakes ice breaking last year.

(on camera): Our mission today is to escort a Canadian tanker through the icy waters of Lake St. Clair, up the St. Clair River toward Lake Huron.
The tanker is loaded with refined petroleum. Not only is this treacherous work. One false move could mean an environmental disaster.

(voice-over): Along the way, Hollyhock is breaking more ice. But the chunks of ice will stack on each other and refreeze thicker.

KIMURA: A lot of it is ice management and breaking only what we need to, the rest to stay in place and not jam up any other choke points.

COHN: Four hours into our voyage, we make contact with the tanker which follows us back to the north. This is why what is normally a one-day trip through this stretch of the great lakes is now taking as much as a week.

KIMURA: Even with ice breaker in their front, they`re not able to make the normal speed.

COHN: And time is money. While it`s too early to measure the economic impact, iron ore shipments are down by a third. If this keeps up, steel mills along Great Lakes could be forced to cut back production for lack of raw materials. And the last time it was this bad, they were still breaking ice on the Great Lakes in May.

Scott Cohn, NIGHTLY BUSINESS REPORT, aboard the U.S. Coast Guard cutter Hollyhock on the Great Lakes.

(END VIDEOTAPE)

MATHISEN: Cold but vital work.

That will do it for NIGHTLY BUSINESS REPORT for tonight. Susie Gharib will be back on Monday. I`m Tyler Mathisen.

Have a great weekend, everybody. And we will see you here on Monday evening.

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) 2014 CNBC, Inc.

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