Transcript: Tuesday, August 5, 2014

NBR ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Collapse on after $80 billion deal. Rupert Murdoch`s 21st Century Fox abandoned its pursuit of Time Warner (NYSE:TWX). What`s next for a fox and the prey that got away?

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Sharp stumble. A lousy start to the trading day, and it got worse. But there are ways to protect your money in this market.

MATHISEN: Road safety. The new technology companies are developing to cut down on the number of long-haul truck accidents and potentially save lives — the second in our three-part series, “Collision Course”.

All that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, August 5th.

Good evening, everyone, and welcome. I`m Tyler Mathisen.

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

It was an ugly day at the open. It was even uglier at the close. However, strong earnings from Disney (NYSE:DIS) could change the tone tomorrow.

But we begin tonight with the $80 billion deal that seems to be dead — 21st Century Fox has withdrawn its bid to acquire Time Warner (NYSE:TWX). In a statement, chairman and CEO Rupert Murdoch side Time Warner (NYSE:TWX) management and its board refused to engage with his company or even explore a higher offer. He also said the bid drove 21st Century Fox shares lower, undervaluing the company and upsetting too many shareholders.

Fox did approve a $6 billion stock buyback plan. Shares of Time Warner (NYSE:TWX) initially dropped sharply after the announcement. Fox went the other way, with shares spiking right after the news.

MATHISEN: But is the deal really dead? Let`s get some thoughts now from Tom Eagen. He`s a senior research analyst with the Telsey Advisory Group and he follows media companies.

Welcome, Tom. Good to have you with us, Tom.

Do you believe that Mr. Murdoch is going to go away permanently? And if so, why did he?

TOM EAGAN, TELSEY ADVISORY GROUP: I think the deal for Time Warner (NYSE:TWX) is dead. You know, we weren`t sure about it to begin with. We had to peg it about a 50/50 shot and that`s essentially because to net debt leverage to EBITDA ratio was going to be too high.

HERERA: You know, Tom, there are those who say that basically Murdoch is raising more cash, he`s going to make it a sweeter offer and that eventually, he`ll be successful. Why don`t you think that that`s in the card?

EAGAN: Well, even if you include the proceeds that they get from their sale of Sky Deutschland and Sky Italia, if the bid is 50 percent cash, which I think is what Time Warner (NYSE:TWX) needs and wants, it`s still higher cash. And so, the leverage still goes to above four times.

MATHISEN: You know, Mr. Bewkes at Time Warner (NYSE:TWX) has succeeded in getting his stock price up, but the cost has been perhaps selling other elements of the company, Time Warner (NYSE:TWX) Cable, the publishing group, Time Inc., breaking them apart. That makes Time Warner (NYSE:TWX) more digestible to another company.

Is there a company that might find Time Warner (NYSE:TWX) too precious to pass up? I`m thinking of Google (NASDAQ:GOOG).

EAGAN: Well, it`s possible. There could be an OCT (ph), or a tech company that`s interested, but to us, there wasn`t another media company that was going to make it bid. So, to us, we said Rupert Murdoch is really negotiating against himself.

HERERA: I would assume that it`s going to be important to watch the dialogue that goes back and forth as investors and analysts and shareholders, basically digest what`s happened late this afternoon. So, what are you going to be listening for from both sides in this discussion?

EAGAN: Well, at Time Warner (NYSE:TWX), Jeff Bewkes needs to show shareholders how he`s going to, you know, enhance values, whether that`s expanding HBO internationally, whether that is improving the ratings at Turner, whether that is increasing share at Warner Brothers. So, he still has to show how he can increase value.

At Fox, I don`t think that they are done yet. So, they are going to spend $75 billion to $80 billion. They just issued an increase authorization for share repurchases by $6 billion. There could be more to go here.

MATHISEN: You seem to be saying, Tom, that the deal did not make financial sense for Fox, and that seems to be their conclusion at the leverage ratios that you describe.

Did it make business sense?

EAGAN: Well, I had a couple issues with that deal. For example, you`re merging Warner Brothers and Fox Studios. So, I mean, Warner Brothers was about 40 percent of the company revenue. So, what would they have done with two times the studio? So, I`m not sure if it made complete sense to me.

MATHISEN: All right. Tom, thank you very much. Tom Eagan, Telsey Advisor Group, we appreciate your perspective tonight.

EAGAN: Sure.

HERERA: Blowout earnings after the bell from Dow component Disney (NYSE:DIS), encouraging results that could set the tone for trading on Wednesday. Disney (NYSE:DIS) pulled in $1.28 a share in the third quarter, the highest earnings per share in the company`s history, easily beating Wall Street estimates. $12.5 billion in revenue also topped forecast with a huge gain from the studio division. “Frozen” became the highest grossing animated film ever, along with strong results that parks and resorts and in consumer products.

Shares were initially higher in after-hours trading.

Julia Boorstin spoke with Disney (NYSE:DIS) CEO Bob Iger and has her one big takeaway from the earnings.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Disney`s quarterly results betting on both the top and bottom line, this on a strength of a range of Disney`s businesses, especially its movie division on the strengths of its Marvel franchise.

BOB IGER, DISNEY CHAIRMAN & CEO: This is not only about a good movie. It`s about the fact that the Marvel brand has arrived and is very healthy and if you look ahead at “Avengers 2” and “X-Men (ph)” and “Captain America 3” and we just announced the sequel to “Guardians” which will be 2017, the pipeline there and the pipeline across the studio is in great shape.

BOORSTIN: CEO Bob Iger also commented on what drove the parks division higher, parks and works revenue up 8 percent while operating income in that division were up 23 percent, due to a combination of increased guest spending and higher attendance.

(on camera): I`m Julia Boorstin, at Disney`s headquarters, in Burbank, California.

(END VIDEOTAPE)

MATHISEN: New day, different direction. The markets wiped out all of yesterday`s gain and then some, on worries strong economic data might jolt Federal Reserve policy and jitters about escalating tensions on the border between Ukraine and Russia.

Despite little trading volume and little other news, all the major averages began lower and then sold off very sharply mid-session. The Dow at one point down as much as 180 points, ended about 140 lower, the NASDAQ down by 31 and S&P 500 off by 18. While stocks slid, oil prices went along with the ride, ending at a fresh six-month low. West Texas crude fell a buck a barrel to finish at $97.38.

Bob Pisani watched today`s selloff from his perch at the floor of the New York Stock Exchange, and now takes a look at what drove trading to the downside.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stocks were modestly weaker at the open, but then stocks dropped again midday and gold rallied on comments from the Polish foreign minister that Russian units were poised to pressure or invade Ukraine. Some of the damage may also have been technical, the S&P dropped below Friday`s lows and is now at the lowest level since April.

But these concerns did not just surface today. The overall trend has been poor since the end of July, over concerns in the Ukraine and Europe in general, as well as concerns about higher rates in the United States.

Now, several U.S. stock sectors that have been weak for days were weak again today, for example, oil stocks have been weak all month. Dow component Exxon and Chevron (NYSE:CVX) were both down roughly 2 percent today. And another Dow component, IBM, has been down five out of the last six days. It was down another roughly 1.3 percent today.

And financials have faired poorly. Goldman Sachs (NYSE:GS) and JPMorgan (NYSE:JPM) both down more than 1 percent today.

The bottom line, it`s been a rough start to August, traditionally one of the weaker months of the year.

For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.

(END VIDEOTAPE)

HERERA: And Hugh Johnson joins us now to discuss today`s market action and ways that you can protect your portfolio in a volatile stock market.

Good to see you again, Hugh. Welcome back.

HUGH JOHNSON, HUGH JOHNSON ADVISORS: Nice to be with you.

HERERA: We — you know, Tyler named all the things that have been troubling the market, but you really think it comes down more to the Fed.

JOHNSON: Yes, I think if you start this period when the market is arguably overvalued and I think, you know, common sense, Sue, suggests that that was the case. Thirty percent move up last year, almost an 8 percent move up this year. Sooner or later, you got to get a correction.

Obviously, there needs to be an excuse for that. I think the excuse for that, and it`s more than just an excuse, is the perception that the Federal Reserve is probably going to move up their timeline on when they`re going to start to raise short-term interest rates, and that`s just going to aggravate conditions.

You know, we started this period thinking the market is a little pricey or over-valued. You add that to the equation and that`s kind of — you put it all together and that gets people running for the exits or starting to sell stocks in order to protect themselves in the event this correction turns out to be something more severe.

MATHISEN: Let me get your reaction to two sort of counter-thoughts, Hugh, if I might. One is that the market is unarguably, or inarguably less overvalued now than it was 10 days or two weeks ago. That`s number one.

And number two is, that if interest rates raise as most people expect them to sometime next year, early, mid, whatever, it`s — they are rising for a good reason, not because there is a big flush of inflation coming that they need to catch and oh, by the way, a little inflation, Hugh, is often a good thing, isn`t it?

JOHNSON: Yes, it sure is. I think you start the whole problem is that you start this period being a little bit overvalued, and so, the question is what`s going to drive the stock market higher?

And the answer is the rising interest rate environment. It`s not going to be price earnings multiples. So, then, you turn the focus on the economy and earnings, and you ask how are earnings going to be this year and next?

And you come up with growth rates of something in the order of say, 2 percent maybe this year, maybe a little bit more. Five percent, 6 percent, next year and you say, where is the beef? What is it that`s going to drive the market? And you can`t come up with anything.

So, you say to yourself, let`s wait until things get a little bit cheaper or there is better opportunity, and that`s exactly what sort of unfolding. We`re moving towards better opportunities in the market. But it`s really that valuation concern.

HERERA: All right. Now, if the volatility is going to continue, we task you with coming up with a couple strategies to protect portfolios in this environment. What did you come up, Hugh?

JOHNSON: Well, number one, is I think that whatever happens, the correction — ongoing correction, it`s within the context of an ongoing bull market. So, the first thing I would not do is reduce my allocation of stocks. In other words, keep a meaningful allocation of stocks unless you can`t sleep at night, then maybe you cut back a little bit. But keep a meaningful allocation of stocks.

But second thing you do when times get tough, is you emphasize large capitalization stocks, stay away from small capitalization stocks. They perform poorly, during a correction or during a bear market.

The third thing is within the context of the stock part of your portfolio, build some defense by owning some safer sectors.

At the top of the list would be health care. You can also add utilities and telecommunications, even though I don`t like the sectors.

And the final thing is look away to other markets around the world. I think you`re seeing better performance from some emerging markets. That`s another strategy.

So, these are things to do to keep a good allocation to equities, but build a little defense in your portfolio. A good idea right now.

MATHISEN: Do you recommend, Hugh, that individual investors should have stop-loss orders or stop losses in place?

JOHNSON: You know, Tyler, most individual investors should not do that and the reason I say that is because for myself or even individual investors, it`s very hard to call short-term swings in the market. That`s why I say, most individual investors should ignore this correction, should ignore these short-term swings in the market, should back away from all of that kind of thing, short-term trading, and should maintain a meaningful allocation to equities and ride this out, because in the long term again, ongoing bull market, I think you`re going to be just fine.

HERERA: On that note, we`ll leave it there, Hugh. Thank you very much.

JOHNSON: You bet.

HERERA: Hugh Johnson with Hugh Johnson Advisors.

Still ahead tonight, the new technology for long-haul trucks that could keep us safer on the road. Part two of our three-part series, “Collision Course”, is next.

(MUSIC)

MATHISEN: A lot of buzz on Wall Street today about the nation`s income gap and its impact on the economy.

The S&P ratings agency says the widening wealth gap is complicating the country`s rebound from the Great Recession and is making the economy more prone to boom and bust cycles.

Income disparity has also contributed to the S&P cutting its economic growth estimate over the next 10 years.

HERERA: But despite the uneven recovery in housing, Americans are still buying homes and Core Logic says the prices rose again in June up by nationwide an average of 7.5 percent. But those prices rose by the smallest year over year increase in 20 months, slowed down by a modest number of sales and more homes coming on the market.

MATHISEN: That`s my house for sale — no.

(LAUGHTER)

MATHISEN: Coach (NYSE:COH) catches a break, posting earnings and revenue that topped estimates and that is where we begin tonight`s focus in the market.

The luxury goods maker`s sales were better than expected for the first time in four quarters, helped by strong demand in international markets, especially China. Even though its results beat, the retailer`s profit was down from a year ago and its costs and expenses increased. Still, shares popped 4 percent to $35.80 for Coach (NYSE:COH).

Toyota (NYSE:TM) saw its profits rise. Earnings got a boost from growth in the U.S. and Europe, while sales in emerging markets were weak. The auto maker did cut its vehicle forecast for 2014. Still, shares were slightly higher at $119.03 was the close there.

Office Depot (NYSE:ODP) said its second-quarter sales climbed. The company says it is continuing to benefit from its merger with OfficeMax, but higher expenses caused the company`s loss to widen. Earnings and revenue did beat estimates. Despite that, the stock dropped more than 3 percent to finish the day at $4.94.

HERERA: Groupon (NASDAQ:GRPN) reported second-quarter results after the bell. The daily deals Web site announced a wider loss as an increase in revenue was offset by a jump in e-commerce spending. Its third quarter revenue guidance was also at the low range of forecasts. Shares initially plunged after the close, during the regular session, though, shares were up a fraction to $7.07.

Zillow also out with a wider loss, but revenue topped analyst estimates as traffic increased and more agents used its home-listing service. It also upped its full-year revenue outlook. After the bell shares were volatile, but during the regular session the stock was down 2 1/2 percent to $141.06.

CVS (NYSE:CVS) Caremark had healthy earnings to report. The pharmacy operator saw its profits rise as it experienced growth in its services and retail businesses. It also upped its earnings guidance for the full year. Despite all of that, though, the shares were off just a little at $77.27.

At sales at Walgreen (NYSE:WAG) were higher in July, as strong results from its pharmacy unit helped offset weaker front-end traffic. Also, there`s a report that Walgreen (NYSE:WAG) will buy the remaining 55 percent of British drug store chain Alliance Boots for nearly, $8.5 billion, but it says it will retain its headquarters here in the U.S.

The stock fell after that announcement and then came back just a little, still closing down 4 percent to $69.12.

MATHISEN: The U.S. Treasury is exploring ways to deter corporate tax inversions and it is circumventing Congress because legislators just can`t seem to get anything done to stop the practice. “The Wall Street Journal” reports that Treasury officials are looking how to enforce and maybe change IRS tax codes to prevent U.S. firms from reincorporating overseas to take advantage of lower corporate tax rates there.

HERERA: It seems that long-haul big rig trucks are increasingly on a collision course with drivers. So, what are truck makers and regulators doing to make highways safer?

Well, in the second installment on our three-part series on the safety of the nation`s roads, Eamon Javers looks at the technological advances aimed at reducing truck-related accidents and deaths.

(BEGIN VIDEOTAPE)

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): There is a serious problem on America`s highways, and it`s only getting worse.

SEN. CORY BOOKER (D), NEW JERSEY: Nearly 4,000 people are killed in truck accidents and over 100,000 people are injured every single year.

JAVERS: A mix of operator error and faulty equipment causes these horrific accidents. But companies are actively working to improve safety on semi trucks.

UNIDENTIFIED MALE: The truck will not let me go faster than him.

JAVERS: One of the company`s banking on safety is Volvo Truck. We visited the plant in Dublin, Virginia, where things like enhanced cruise control and lane departure warning systems are being installed. We took a ride to see Volvo`s new technology in action.

UNIDENTIFIED MALE: My foot is not on the accelerator.

JAVERS: Some of the safety technology includes setting a cruise speed that does not allow the truck to go any faster than the car in front of it.

UNIDENTIFIED MALE: You get some slow beeps here from the radar. As you get closer to them, it starts beeping faster and faster. If you get too close, you get the alarm.

JAVERS: And whenever we did get too close —

UNIDENTIFIED MALE: We`re running up on that vehicle.

JAVERS: — this would happen.

UNIDENTIFIED MALE: The truck is doing all the braking. My leg hasn`t moved and cruise, the system will completely stop the truck.

JAVERS: This technology very well could have saved Dan Lindner`s family. Lindner`s wife, mother-in-law and two young sons were killed when a driver slammed into the back of the family`s mini van.

DAN LINDNER: The impact was so severe that they didn`t know what hit them.

JAVERS: One of the other features Volvo installs in its trucks is intended to help truck drivers, especially those who are fatigued, stay in the right lane. If the driver fails to turn on his blinkers and veers off.

UNIDENTIFIED MALE: You`ll hear a notice. You`ll notice a little —

JAVERS: The American Trucking Association estimates only about 10 percent of all trucks on the road have some kind of active safety technology — which begs the question, why aren`t all trucks required to have it?

JOHN LANNEN, TRUCK SAFETY COALITION: The rule-making process is just too slow. The governments need to speed up the process of evaluating some of these opportunities.

JAVERS: Safety experts say organizations like the Federal Motor Carrier Safety Administration are working too slowly, but that ultimately, these rules should be put in place and enforced.

And Volvo is not the only company trying to stay one step ahead of the regulators. Mercedes parent company Daimler has unveiled its autonomous truck. Mercedes wants driverless trucks on the road by 2025.

Skeptics, though, say it will be a long time before we see many of these innovations like fully autonomous trucking on the road. And no matter how much technology a truck has, it only mitigates the chance of a collision.

Whether or not you`re truly safe on the road really comes down to who is behind the wheel.

For NIGHTLY BUSINESS REPORT, I`m Eamon Javers.

(END VIDEOTAPE)

HERERA: And tomorrow, the final installment of our three-part series takes a look at the trucking companies with safety violations that shut down, only to start up again under a different name. And to read more about Eamon`s series on the trucking industry, head to our Web site, NBR.com.

MATHISEN: Coming up, finding the next Triple Crown contender. We`ll take you inside the big business of thoroughbreds and one of the most exclusive horse auctions in the world.

(MUSIC)

MATHISEN: A tough year for Target (NYSE:TGT) got a bit tougher. The retailer says expenses from the massive data breach last year will be nearly $150 million. Target (NYSE:TGT) is also lowering its second quarter earnings forecast, citing promotional markdowns at its U.S. stores and saw sales (VIDEO GAP) Canada. That sent shares lower by almost 4 1/2 percent.

HERERA: There is a big money battle brewing over some dollar stores. Bloomberg News reporting that Dollar General (NYSE:DG) is exploring a bid to buyout rival retailer Family Dollar. But you might recall another competitor, Dollar Tree (NASDAQ:DLTR), is already in talks to acquire Family Dollar for $8.5 billion. While Dollar General (NYSE:DG) evaluates its options, this could mean a bidding war might develop.

“USA Today” publisher Gannett (NYSE:GCI) is paying nearly $2 billion for the rest of Cars.com that it doesn`t already own. Gannett (NYSE:GCI) also announced plans to split into two publicly traded companies, one for broadcasting and digital properties, and the other for print media.

The CEO Gracia Martore says that it`s all part of Gannett`s long-range plan.

(BEGIN VIDEO CLIP)

GRACIA MARTORE, GANNETT CEO: We have been on a transformation journey for the last 2 1/2 years. We have stabilized and revitalized our publishing business. We`ve doubled our broadcasting portfolio, we`ve doubled with the acquisition of Cars.com, our digital portfolio. So, we have great businesses of great scale.

(END VIDEO CLIP)

HERERA: Well, shares of Gannett (NYSE:GCI) nonetheless fell nearly 1 1/2 percent today.

MATHISEN: T-Mobile, the fourth biggest wireless carrier in the United States reportedly now plans to reject a $15 billion majority stake offer from France`s fourth biggest mobile carrier, a company called Iliad. That rejection could come as soon as tomorrow, say reports. T-Mobile`s parent company Deutsche Telekom views the offer as too low.

HERERA: Did you ever wonder where all these elite racehorses you see in the Kentucky Derby or Preakness come from? Most of them are bred from past winners and many of them are bought and sold at the Annual Saratoga Horse Sale in Upstate New York. Now in it`s 97th year.

So, what horses are on the action block and who is doing the buying?

Morgan Brennan has that story.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Every August, billionaire celebrities and royalty from around the world flock to Saratoga Springs, to take part in one of the most exclusive horse auctions in the world.

Here, more than $30 million changes hands as the next generation of premiere racehorses is bought and sold. One-year-old thoroughbreds that are virtually untrained and untested on the track, but bred from sports` biggest winners.

GEORGE BOLTON: This is a very special sale, let`s start with that. It`s a select group of yearlings. So, it`s a very high end group of yearlings. The average horse will bring $300,000 a year. So, this is not an average situation to start with.

BRENNAN: A long line of champ joins have come from this auction, from this year`s Belmont Stakes winner Tonalist, all the way back to Man O`War, widely considered the greatest racehorse in U.S. history.

Buyers examine pedigree and athleticism, choosing a horse they hope can bring not just wins but also return on their investment.

BOBBY FLAY: I`m really careful about my investments, but, you know, if I`m patient, that can really pay off on the long term.

BRENNAN: Big money, bigger dreams.

RILEY MCDONALD: If you love the beauty of the horse and you love the sport. When they cross the line in front, there is nothing really better.

BRENNAN: As the ultimate discretionary, the horse business and economy are closely tied together.

BOLTON: The stock market leads the horse business by six to 12 months, and when Lehman went down in `08, the horse business felt it in `09. Right now, it`s coming back to almost back to `07 levels.

BRENNAN (voice-over): But the so-called bloodstock business is rife with other risks as well. Many horses don`t perform according to expectations despite those top genes and top trainers and still more fall victim to injury.

B. WAYNE HUGHES: It`s really a great way to make a million dollars if you start with 10, but now, we`re making money and I like it better.

BRENNAN (voice-over): And that`s what keeps racing enthusiasts coming back, all of the hoping when the gavel falls at auction, they are taking home the next great racing champion.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan in Saratoga Springs, New York.

(END VIDEOTAPE)

MATHISEN: And finally tonight, the people have spoken. Susie is out rehabilitating her foot after some surgery and on our Web site, we asked you viewers to choose the color of her cast and you voted for pink.

HERERA: Pink. There you go.

MATHISEN: She listened. You spoke, she listened. Gharib, a woman of the people always looking stylish, pretty in pink.

HERERA: Now, her biggest chores is going to be color-coordinating the outfit.

MATHISEN: The wardrobe with the pink shoes.

HERERA: You got to do that. Absolutely.

MATHISEN: All right.

HERERA: Susie is going to be back very soon, by the way.

On that note, that does it for NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera, in for Susie. Thanks for joining us.

MATHISEN: And I`m Tyler Mathisen. We`ll see you tomorrow.

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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