TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Mega deals. Dell (NASDAQ:DELL) buys EMC (NYSE:EMC) in the biggest tech deal of all time, and Anheuser-Busch makes another bid — or is that a Bud? — for SABMiller in what would be one of the biggest takeovers ever.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Blockbuster bust. Eli Lilly (NYSE:LLY) shares tank after it scrapped an experimental cholesterol drug that was once thought to have big potential.
MATHISEN: And $7 trillion target. Why big investors are going after a sector that`s been slow to innovate — the senior care market.
All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, October 12th.
HERERA: Good evening, everyone, and welcome.
We begin with two mega deals — one that`s done; another that`s still developing.
Dell (NASDAQ:DELL) is buying EMC (NYSE:EMC) for $67 billion, making it the largest technology deal ever. The other deal isn`t done quite yet. But Anheuser-Busch InBev just sweetened its offer for SABMiller, hoping the higher price can seal the deal, and if it does, it would be one of the largest takeovers of all time.
So, let`s start with the tech tie-up, which we told you about last week when with was in the works. It sent shares of EMC (NYSE:EMC) higher today. Dell (NASDAQ:DELL) is privately held.
But is there a big risk to doing a big deal like this one, and which companies might be next?
Josh Lipton has our report tonight.
JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Dell (NASDAQ:DELL) founder and chief executive Michael Dell (NASDAQ:DELL) will lead the combined company as chairman and chief executive. He says this deal creates an enterprise powerhouse.
MICHAEL DELL, DELL CHAIRMAN AND CEO: We started back in about 2002, and for about a decade worked together. At one point, the relationship was about a $2 billion annual run rate. And, you know, this is really all about bringing together complementary technologies and helping our customers address challenges and opportunities that this digital future is creating.
LIPTON: Analysts say the IT hardware market which includes companies selling storage and servers still generates a lot of cash but the stock prices have come under pressure because of the threat from newer technologies like cloud computing. And that means this is a market ripe for consolidation.
BRENT BRACELIN, PACIFIC CREST SECURITIES: Being bigger, being able to protect cash flows, reinvest some of the cash flows, I think makes a tremendous amount of strategic sense given the stage we`re at and frankly given the tipping point we see where some of the disruptions from cloud could start to accelerate now.
LIPTON: Bracelin highlights one name to watch, NetApp (NASDAQ:NTAP). The data storage company he says is worth north of $35 per share in a consolidation scenario. NetApp (NASDAQ:NTAP) in a statement to CNBC said that the Dell (NASDAQ:DELL)-EMC (NYSE:EMC) deal does not fundamentally change the competitive landscape and in fact could provide the company with a chance to take market share.
Of course, big tech deals pose real risk. For instance, HP bought Compaq in 2001 for $25 billion, in a move meant to create a tech giant that could take on IBM. Critics charge that the acquisition was ultimately a dud leading to a plunging stock price and thousands of layoffs.
On the other hand, analysts are fans of Facebook`s decision to buy WhatsApp for $19 billion. They see the messaging service potentially disrupting the telecom industry.
Despite the risk, there is the expectation of more mergers in the IT hardware space. Consolidation could make real sense for companies lacking growth but boasting plenty of cash and cheap valuations.
For NIGHTLY BUSINESS REPORT, I`m Josh Lipton in San Francisco.
MATHISEN: And now to the potential deal that could create a beer behemoth, controlling nearly a third of the world`s beer market. Shares of Anheuser-Busch InBev did fall slightly today after it increased its offer for SABMiller, which trades over in London.
But big hurdles still remain before an agreement could be hammered out and as Morgan Brennan explained, under British law, the clock is ticking.
MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Call it round 4. Today, AB InBev upping its price for SABMiller as clock ticks down to a Wednesday deadline.
The world`s biggest brewer raising its offer for its top rival to 43 1/2 pounds per share in cash, plus shares in stock as an alternative for the largest stakeholders. That works out to an estimate $103 billion, in what would be one of the largest takeovers in history. AB InBev noting the improved proposal hinges on both Altria Group (NYSE:MO), SABMiller`s top shareholder, and Bevco, the number two shareholder controlled by the Colombia`s Santo Domingo family, opting for the partial share alternative, which would include a combo of cash and stock.
No word yet from SABMiller, which owns Peroni and Miller Lite on this latest offer. But analysts say the key will be BevCo agreeing to the new price.
CAROLINE LEVY, CLSA: I think what the new bid does is keep the door open for negotiations because at this point, up until this point, SAB really hasn`t let AB In to discuss anything. They`re making — they`re proposing an offer. They haven`t made a formal offer, and unless they get some level of detail and communication from SAB, they`re really not going to be able to do that.
BRENNAN: The higher offer comes after three previously rejected ones. At just 42 pounds per share last week and 40 pounds and 38 pounds prior to that.
This past Friday, after the last refusal, SAB raise its cost savings target to more than a billion dollars by 2020, a move meant to highlight its strength as a stand-alone company.
Now, negotiations are getting down to the wire. According to U.K. takeover rules, AB InBev, which owns Budweiser and Stella Artois, has until noon eastern on Wednesday to submit a final bid or walk away for at least six months, unless SABMiller asks for an extension to continue negotiating.
If a deal does emerge this week, the proposed powerhouse would claim nearly a third of the global beer market with total annual sales estimated at upwards of $70 billion. The proposed transaction would then be likely to face intense regulatory scrutiny that could result in the divestiture of certain brands and certain markets including the Miller Coors business at SABMiller owns in a joint venture with Molson Coors.
For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.
MATHISEN: So thirsty.
And late today, “Reuters” reports that the Department of Justice is separately looking into allegation that`s Anheuser Busch InBev tried to curb competition from craft brewers by buying up distributors.
HERERA: It`s been a buoyant year so far for M&A deals, but as we approach the end of the year, will we see deal making pick up steam?
Jeff Bistrong is managing director at Harris (NYSE:HRS) Williams, which specialize in M&A, and he joins us now.
Jeff, welcome. Nice to have you here.
JEFF BISTRONG, HARRIS WILLLIAMS MANAGING DIRECTOR: Thank you very much.
HERERA: I guess one of the big questions is, one, what`s fueling this M&A and does the end of the year necessarily represent kind of a deadline for some of these companies to do deals or could we see this trend continue into the new year?
BISTRONG: I`ll start with the first point. In fueling the tremendous activity in M&A is really the availability of capital across many different sources, both for corporate and financial investors. That remains strong, and we expect it to continue to remain strong through the end of the year. Certainly, we expect deal flow to remain healthy in the fourth quarter but then continue into 2016.
MATHISEN: You know, I can see the reason for the EMC (NYSE:EMC)-Dell (NASDAQ:DELL) deal. It seems like a classic sort of strategic partnership here. I can see the reasons for the SAB-InBev possible deal.
But are these being driven by the desire to go out and buy or acquire growth or a desire to increase profitability by cutting expenses? Or both?
BISTRONG: It`s certainly all of the above. It is attractive to acquire revenue because their currency for acquisition, whether it`s stock or cash or debt is very reasonably priced in the market today. So it`s easy to make acquisitions. And also there`s tremendous opportunity across industries to rationalize businesses, drive technology through them, and improve profitability.
HERERA: But, Jeff, you know, a lot of people are pointing to this EMC (NYSE:EMC) deal and also the beer deal as one of them would be the biggest takeover practically in history and the other is the biggest technology takeover deal and the world “bubble” comes to mind.
Do you see in any sign of frothiness in the market with deals of this size coming to market as quickly as they have been?
BISTRONG: I think it would be right to say we`re at peak or near peak levels in M&A. But what we have been at some time. Instead of a bubble, we`d call it a plateau. We`ve been at elevated M&A levels both in terms of volume and valuation on deals for some time.
What you`re seeing is these larger transformational acquisitions. And we believe that this sustained period of strong M&A opportunity is reflecting out in bigger deals. If anything, these large deals reflect a buyer`s belief that the broader economy will remain strong and they`ll be able to make good on these acquisitions. Therefore, we believe it`s going to be a sustainable market.
HERERA: Very interesting.
Jeff, thank you so much. Jeff Bistrong with Harris (NYSE:HRS) Williams.
MATHISEN: And on Wall Street today, stocks began the week with gains as investors prepared for earnings reports from some of the world`s biggest companies later this week. The Dow Jones Industrial Average rising now seven straight sessions, up 47 points today to 17,131. NASDAQ gained eight. And the S&P 500 added a whopping 2.
But the gains were capped as a drop in oil prices weighed on energy shares.
HERERA: And one reason for that decline in oil was a report from OPEC that showed a rise in output last month to a little bit more than a three-year high. The oil cartel also said it expects U.S. production to fall next year for the first time in eight years.
By the settlement, domestic crude was down 5 percent to $47.10.
MATHISEN: And despite the decline in oil prices today, they have been rising steadily over the past month. But the energy markets are waiting for some key reports out of China this week. For clues on future demand from the world`s top energy consumer.
Seema Mody now with why this week is an important one for investors across the globe.
SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Strong start to the month for emerging markets but crucial data out of China this week could change the emerging markets story, starting with trade data tomorrow. A look at China`s import-export picture will provide evidence on just how much economic activity is slowing. Inflation on Wednesday will tell us whether China is in fact dealing with a deflation problem and bank lending, a good indicator of how healthy the consumer is and whether they are taking out loans will come out by Thursday.
Disappointing data could prompt the Chinese Central Bank to introduce new stimulus measures, but the bigger concern is whether China will devalue its currency again to boost trade, a move that would reignite the global currency war fears. Something Washington is keeping a close eye on.
But some investors say the China fears are overblown and are recommending clients to look not only at China but Indonesia and India for opportunities.
DAVID HERRO, HARRIS ASSOCIATES: Looking at places like Indonesia, India, and perhaps even China, there are some better macro stories, especially in India and Indonesia. And again, these are big places. India`s over a billion people. Indonesia, you know, has hundreds of millions of people. They`re growing at 4 percent, 5 percent, 6 percent a year. Even China, perhaps even China has bottomed.
MODY: And we`ll learn more about China`s overall economic growth when it releases GDP numbers one week from today. In the meantime, the Chinese stock market, the Shanghai Composite, is trading at a seven-week high after a senior central banker from China said the stock market correction is, quote, “almost over.”
For NIGHTLY BUSINESS REPORT, I`m Seema Mody.
HERERA: As we mentioned, the focus this week will also be on earnings. Big financial firms are set to report and investors will be paying attention since that sector has the second biggest weighting in the S&P 500. Tomorrow, we hear from JP Morgan. Wednesday, Bank of America (NYSE:BAC) and Wells Fargo (NYSE:WFC). Thursday, Citigroup (NYSE:C) and Goldman Sachs (NYSE:GS) release their results.
According to Thomson Reuters (NYSE:TRI), financial companies are expected to show earnings growth of more than 8 percent versus a decline overall for the S&P 500.
MATHISEN: And still ahead, as Americans age, investors see big opportunity to the tune of a $7 trillion market and growing.
HERERA: Shares of Eli Lilly (NYSE:LLY) had their worst day since 2008. The drug company is halting the development of an experimental cholesterol drug. The stock sank 7 percent after it was determined that the drug wasn`t effective in a clinical trial.
Meg Tirrell has more now on this cholesterol drug setback.
MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: Tough day for Eli Lilly (NYSE:LLY). The company stopping development of a big cholesterol drug that was in the last stages of clinical studies because an outside advisory board said it looked like the drug wasn`t going to work.
Analysts had really focused on this as one of the most important pipeline products for Lilly, saying it could be a potentially $5 billion product if it was successful. Now, this class of cholesterol drugs was thought to be important because you can take them by pill. As opposed to the big class that just got approved from Amgen (NASDAQ:AMGN) and Regeneron Sanofi which are injectable drugs. There is another drug in this class known as CEPT inhibitors being developed by Merck (NYSE:MRK).
So, in addition to Lilly`s stock getting hit today, you did see a little bit of a read-through into Merck (NYSE:MRK) being weighed on as well, as folks wondered if we`d see a similar negative outcome for that drug.
Now, some positive read-through to those drugs from Amgen (NASDAQ:AMGN) and Regeneron Sanofi as analysts said this removes a potential competitor to those. So, you did see the stocks of those companies going up.
Now, there`s another company we should mention, Asperion. It`s a smaller drug maker working on yet on another kind of cholesterol drug aiming to lower bad cholesterol.
Now, originally, that stock rose as well as the others from Amgen (NASDAQ:AMGN) and Regeneron Sanofi because folks thought it would lessen the competitive landscape. But as the day went on, that stock fell as folks started to worry that company would need to do what are more known as outcome studies, before getting approval of this drug.
So, because this market is so big, millions of patients in the United States, billions of dollars potentially at stake, a lot of stocks moving on this big negative surprise from Eli Lilly (NYSE:LLY).
For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.
MATHISEN: Ferrari is getting ready to offer shares to the public. Today, Fiat Chrysler announced the launch of its Ferrari spinoff and that it plans to sell a nearly 9 percent stake in the automaker in its initial public offering. The shares will price between $48 and $52. And will raise about a billion from investors. Shares will trade on the New York Stock Exchange under the very apt ticker symbol RACE.
HERERA: Meantime, Standard & Poor`s downgrading Volkswagen`s credit rating, citing the emissions scandal. The automaker`s short-term corporate credit rating was cut to A-minus from A. The ratings agency will keep Volkswagen on credit watch negative and could lower its rating even further.
Now, separately, the Volkswagen emissions scandal has also damaged Germany`s brand. According to a report by Brand Finance, Germany has lost its position as the most powerful national brand with its value tumbling more than $190 billion.
MATHISEN: Ford announcing a major invest in China, and that is where we begin tonight`s “Market Focus”.
The automaker intends to invest nearly 2 billion over the next five years into smart cars in China, an area where it has seen sales decline. Ford hopes that new features such as smartphone connectivity and control will help it better compete against growing competition. Shares of Ford off earlier in the day, but they ended a penny higher at $14.98.
Norwegian cruise lines also planning to invest in its Chinese business. The company is developing a ship that will cater especially to Chinese customers. The 4,200-passenger ship should set sail in mid-2017. And shares of Norwegian were up more than 3 percent today to $59.79.
The oil refiner Phillips 66 unveiled its 2016 capital budget today, and it plans to spend a billion less than this year. The company also intends to boost its buyback program by $2 billion. Shares of Phillips higher today by a little bit at $83.87.
HERERA: General Electric (NYSE:GE) is in talks with Wells Fargo (NYSE:WFC) to have that bank purchase more than $30 billion in loans, and that`s according to a Reuters report. In April, the company announced it was looking into selling 200 billion in assets as it looked to focus more on its core manufacturing businesses. Shares of both companies were flat today. GE closing at $28.09. Wells Fargo (NYSE:WFC) at $52.18.
Twitter is reportedly set to announce a cost-cutting plan that includes some layoffs. This news comes days after Jack Dorsey was named permanent CEO of the company, which has seen its shares fall sharply over the past year. On the news, shares were off almost 7 percent to $28.74.
And Ryder Systems cutting both its third quarter and full-year earnings forecast, sending shares of the truck rental company down sharply after the bell. The company said earnings were hit partially by an unexpected number of out of service vehicles in that quarter. Shares initially fell 6 percent on the news, but then closed the regular session down just a fraction to $75.65.
MATHISEN: Well, Sue, gas prices didn`t move much over the past two weeks. According to the Lundberg Survey, the average price of a gallon of regular gas dropped a half a cent to $2.34. The slowing decline is attributed to the rise in oil prices in recent weeks, but prices are still down, that is, on gasoline more than 90 cents a gallon from a year ago.
HERERA: And it`s partially because of those low gas prices that Social Security recipients will not get an increase in benefits next year. The annual cost of living adjustment is based on a government measure of inflation, which is down because of the drop in gas prices. This is just the third time in 40 years that there will be no rise in benefits. The official announcement will be made later this week.
MATHISEN: Senior care in the U.S., not surprisingly, a booming $7 trillion market, but it has been slow to change. Investors, however, are betting big now and are looking at ways to innovate and invest in this growing niche market.
Katy Fike is a partner at Generator Ventures, and co-founder of Aging 2.0. She`s one of those investors and joins us now.
Katy, welcome. Good to have you with us.
Aging 2.0 is called an accelerator. Tell me — tell me what an accelerator does and in what sectors of this sort of aging market you`re finding the greatest values.
KATY FIKE, AGING 2.0 CO-FOUNDER: Sure. Yes, there`s accelerators in other industries and we really were the first to set up one in ageing and senior care. And we really work with them closely to help them understand the insights they need to address this market, as well as how to refine their product and think about messaging, think about usability and design. Then we help them with distribution and partnerships to help them get to scale, and we also help them with funding.
So, it`s really about finding these entrepreneurs who are working on these really important areas and helping them get to market faster. They`re working on a broad range of things from cognitive impairment to falls to medication management to help them stay independent.
HERERA: Exactly, because it`s complicated, isn`t it? A lot of those who are aging don`t want to or can`t afford to go into assisted living facilities. They`d rather stay in their homes. Then you have the wearable niche. You know, it`s a very complicated and multilayered area you`re invested in.
FIKE: It really is. That intersection of ageing and technology is very nuance. And you have to be very careful about how you do it. Senior care has traditionally been very high touch and low tech. And introduce technology, we have to be very thoughtful about how we can create high-tech but also high touch solutions.
And usability and design are really critical. And just getting the entrepreneurs closer to who they`re designing for, most of the entrepreneurs are in their 20s, 30s, and 40s, designing for problems they`re not experiencing. And so, we have to bridge that gap.
MATHISEN: What are you seeing — this is obviously a finance and business show. What are you seeing that is in the pipeline or out there already that could help the aging population manage their money? Because it`s very complicated stuff, and sometimes that`s an area where control issues come into play, with children and so forth. What are you seeing there?
FIKE: I think one of the companies that actually was in our first accelerator program called True Link Financial. They developed a debit card to help protect against financial elder abuse, which is obviously a huge problem for this population, especially if cognitive impairment starts to come into play. And so, it gives more transparency to the family around spending, around being able to set limits, perhaps about donations or how much someone could spend with certain types of vendors.
So I think transparency and letting family, even if they`re spread out, have more insight into what`s being spent where. And that could be either with direct solutions like True Link or other more broad solutions like online banking or mint.com that help you all get a view into where the money is coming and going.
MATHISEN: Fascinating in a growing market.
Katy Fike, thank you very much, with Generator Ventures and Aging 2.0.
HERERA: And coming up, why some Americans don`t feel as optimistic about the economy as they once did.
But, first, how commodities and currencies fared today. The bond market was closed for the Columbus Day holiday.
HERERA: Two Federal Reserve policy makers today suggested that a December rate hike is possible as long as the data doesn`t disappoint. Atlanta Fed President Dennis Lockhart said that he expects the central bank to raise interest rates this year. Separately, Chicago Fed President Charles Evans said as long as the increases are gradual, he could be persuaded to support a rate hike this year. Evans previously said he would prefer to wait until next year.
Both Evans and Lockhart are voting members of the central bank.
MATHISEN: But how do average Americans opposed to Fed presidents feel about the economy and the stock market, if they feel good, they tend to spend more. If they don`t, they may put off purchases.
Steve Liesman asked that question to people across the country in his quarterly all America economic survey.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The plunge in the stock market and weaker growth in the U.S. and abroad look to have taken a toll on optimism in America according to the latest CNBC/All America Economic survey.
The poll of 800 Americans found views on the current state of the economy about stable. But 32 percent of Americans now say the economy will get worse, up six points from the last survey. And the highest levels since the government shutdown in 2013. A fifth think the economy will get better, that`s the lowest level since 2008.
JAY CAMPBELL, HART RESEARCH ASSOCIATES SENIOR VP: We`ve been on the upswing for the past few quarters and we`re now on a very clear downswing with a pretty significant net negative set of feelings among the public right now.
The significant drop-off in optimism for the future is surprising given the ongoing sort of slow incremental increases in improvements in the economy. But people are clearly not feeling it entirely yet.
LIESMAN: Lackluster growth and the recent stock market dive look to be weighing on sentiment. Forty-six percent of the public say this is a bad time to invest in stocks. A 12-point gain from the June survey. Attitudes eroded among the wealthy and those with considerable sums in the stock market.
JOE LAVORGNA, DEUTSCHE BANK CHIEF U.S. ECONOMIST: The very rapid decline in stocks certainly is going to shaky think people`s decision to buy big ticket items. It certainly impacted the Fed`s decision not to raise rates.
LIESMAN: The danger is that these negative sentiments continue into the critical Christmas selling season. The optimistic view, lower gas prices combined with a turnaround in stocks and jobs to settle things down before consumers go shopping in earnest.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.
HERERA: So, we wanted to know how you feel about the economy and your own prospects. So, we took our cameras outside to find out.
(BEGIN VIDEO CLIP)
UNIDENTIFIED FEMALE: I just don`t know if the jobs that are being created are what people want.
UNIDENTIFIED MALE: I think it`s stabilizing right now. I`m working as a recruiter, and it seems like there are more jobs available. For a while, there were fewer jobs in general and people were really struggling, but I think things are moving up at least in my sector.
UNIDENTIFIED FEMALE: In the `90s compared to today, my salary has dropped as far as working.
(END VIDEO CLIP)
MATHISEN: And finally tonight, the Nobel Prize in Economics was awarded to a Princeton university professor. Angus Deaton is one of the leading experts on poverty and has done research in India, South Africa, and other parts of the developing world. After being honored, Deaton said he foresees a decline in poverty but is concerned about upward trends in inequality.
Back to the preceding story there, I think the political uncertainty going into the election year also causes people to feel less confident economically.
HERERA: Absolutely. They want to know who`s going to be running the country. Congress isn`t getting a lot — there`s a lot of turmoil.
MATHISEN: A lot of turmoil on the horizon.
HERERA: I agree.
That does it for NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera. Thanks for watching.
MATHISEN: And I`m Tyler Mathisen. Thanks from me as well. Have a great evening, everybody. And we will see you right back here tomorrow night.
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