Transcript: Nightly Business Report – March 21, 2016

NBR-ThumANNOUNCER:  This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue
Herera.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  New era.  A historic trip to
Cuba has American CEOs seeing big potential and even bigger obstacles.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR:  Marriott sweetens its bid
for Starwood Hotels and it may be willing to go even higher.

HERERA:  Big promises.  Presidential candidates promise to bring back lost
manufacturing jobs.  But the key question is how.

All of that and more tonight on NIGHTLY BUSINESS REPORT for Monday, March
21st.

MATHISEN:  Good evening, everyone, and welcome.

Grand potential and big pitfalls, that is how U.S. business leaders view
Cuba.  Today President Obama along with chief executives from Marriott and
Xerox (NYSE:XRX), among others, made an historic trip to Havana.

Atop the agenda, reestablishing deep commercial ties between the United
States and Cuba.

But as Michelle Caruso-Cabrera reports tonight from Havana, reaching that
goal won`t be easy and is anything but assured.

(BEGIN VIDEOTAPE)

MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT:  A historic
handshake in Havana as President Obama met with Cuban Leader Raul Castro,
another sign of the thawing relations between the countries.

There was also a visibly awkward moment when a very uncomfortable Raul
Castro was forced to take a question from an American reporter about human
rights in Cuba.

RAUL CASTRO, CUBAN PRESIDENT:  Did you ask if we had political prisoners?

REPORTER:  I wanted to know if you have Cuban political prisoners and why
you don`t release them.

CASTRO:  Well, give me a list of the political prisoners and I will release
them immediately.  Just mention the list.  What political prisoners?

CARUSO-CABRERA:  While the trip was marked by political events, there was
commercial news as well.  Starwood Hotels announcing they had reached a
deal to manage three hotels here in Cuba, all of them owned by the Cuban
government.

One American staying at one of those hotel welcomed the American
management, sort of.

SAM YU, TOURIST:  It will be interesting because it will bring an American
level like service or professionalism to like the hotel industry here, but
also, I`m ambivalent about that because sometimes what`s amazing on Cuba is
that you`re missing all of that.

CARUSO-CABRERA:  Arne Sorensen, CEO of Marriott Hotels, was part of the
delegation traveling with the president and said the Cubans are struggling
to decide just how much American investment they want.

ARNE SORENSON, MARRIOTT PREIDENT & CEO:  I`m not sure any of us know how
exactly fast they will move and where they ultimately come to rest.  But
there is an interest I think in both sides and greater engagement between
the United States and Cuba, greater economic growth.  We certainly know
American travelers want to come to Cuba.

CARUSO-CABRERA:  Even if the embargo goes away, there are many laws and
regulation in Cuba that make investment unattractive.

URSULA BURNS, XEROX CHAIRMAN & CEO:  An embargo has to be lifted in order
for us to be — have more access to the market.  But there are
infrastructure elements here that are — that absolutely need to be
improved.  There are currency rules that have to be improved.  There are
worker rules that have to be improved.  So, there`s so much that has to be
done to have full bilateral trade happening.  It will take a little while.

But I`m not — I am convinced that the interest is there.  I`m just not
convinced on how exactly it will be done.

CARUSO-CABRERA:  President Obama has one more day in Cuba.  He`ll meet with
political dissidents and also attend a baseball game between the Cuban
national team and the Tampa Bay Rays of Florida.

In Havana, Michelle Caruso-Cabrera, NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

HERERA:  Michelle mentioned Starwood.

Well, while in Cuba, Starwood agreed to a sweetened merger bid from
Marriott, just one week after Starwood first received a buy out bid from a
major Chinese company.  The Marriott/Starwood combination would create the
world`s largest hotel chain.  Word of the deal sent shares of Starwood
higher and Marriott lower.

Simon Hobbs tells us why Starwood is suddenly such a hot property.

(BEGIN VIDEOTAPE)

SIMON HOBBS, NIGHTLY BUSINESS REPORT CORRESPONDENT:  As the first family
landed in Cuba Sunday, the CEO of Marriott, also vice chair of the
president`s Export Council, wasn`t far behind them.  And by first light
Monday, he was making headlines of his own with a higher offer for
Starwood.

SORENSON:  We made a significant move over the course of the weekend and
decided we are very really interested in the strategic power of this
combined platform.  Starwood board accepted it and we`re ready to go.

HOBBS:  Marriott CEO thought he tied up the Starwood deal four months ago,
but now, the Chinese led by insurer Anbang are trying to break up the party
at the last minute.  Here`s a timeline: November 16th, Marriott makes what
it later called an opportunistic offer of $63.74 a share after Starwood
spent much of the year looking for buyers.

But weeks before shareholders would choose to finalize the deal, China`s
Anbang emerges with the unsolicited offer of $76 a share, but it`s all in
cash.

After discussions with Starwood, the offer is firmed up one week later and
raised to $78 a share again all in cash.

Now this morning, Arne Sorenson of Marriott is counter with $79.53 a share.
Marriott is willing to pay more partly because it says it now better
understands how powerful the Marriott rewards and SPG loyalty schemes will
be running in parallel.  Arne Sorenson says they are the best bet to
compete in the digital marketplace against the likes of Airbnb, Expedia
(NASDAQ:EXPE) and Priceline.

SORENSON:  The deal we`ve got in November in retrospect may be was just too
good a deal and so, we have gone back and, obviously, there was competing
bidder that surfaced last week.  We said what is a fair offer for us to put
forward.

HOBBS:  But remember, when China`s Anbang pay Hilton what many believe was
a staggering $2 billion to buy the Waldorf Astoria Hotel in New York, it
proved how deep its pockets can be.  Many question if it will now counter
bid again.  Marriott won`t rule out that this is its final offer.

SORENSON:  No, we haven`t.  But again, we`re not going to talk about what
might happen.

HOBBS:  In the meantime, in Havana, Starwood became the first U.S. hotel
company to sign a deal with the Cuban government since the revolution, to
manage and market two properties in the capital and assign letter of intent
for a third.

For NIGHTLY BUSINESS REPORT, I`m Simon Hobbs in New York.

(END VIDEOTAPE)

MATHISEN:  In other deal news, Sherwin-Williams (NYSE:SHW) will buy rival
paint company Valspar (NYSE:VAL) for more than $9 billion.  The merger is
the biggest acquisition in Sherwin-Williams` 150-year history.  And
according to its CEO, the deal would expand the company`s range of
products.  Shares of Valspar (NYSE:VAL) got a fresh coat, up more than 23
percent while Sherwin-Williams (NYSE:SHW) got rolled, down $15.

HERERA:  Data services firm IHS (NYSE:IHS) is moving its headquarters to
the United Kingdom, but purchasing market data firm Markit.  The deal is
worth more than $13 billion.  And by moving to the U.K., IHS (NYSE:IHS)
will be able to take advantage of the lower corporate tax rate there
through that is known as an inversion.

MATHISEN:  On Wall Street, the Dow extends its win streak to seven, and
follows a fifth consecutive wave of gains and a quiet session that was
dominated by that deal news   The Dow Jones Industrial Average rose 21
points to 17,623, NASDAQ gained 13, and S&P 500 added 2.

HERERA:  Atlanta Fed President Dennis Lockhart says steady economic growth
could justify an interest rate increase as soon as April.  Mr. Lockhart,
who is not a voting member, says there`s enough evidence to justify a hike
in short term rates, although he agreed with the Central Bank`s decision
last week to leave them unchanged.  Separately, the president of the
Atlanta Fed said inflation will accelerate in the coming years and will
move towards the Fed`s target.

MATHISEN:  Fannie Mae and Freddie Mac will reportedly cut mortgage balances
for thousands of homeowners.  But according to “The Wall Street Journal”,
fewer than 50,000 borrowers would be eligible for the reduction.  And
because of that, critics say the plan doesn`t go far enough.

HERERA:  And something happened in housing in February — sales of existing
homes dropped much larger than expected 7 percent for the month.

Diana Olick takes a look at what`s behind the weakness.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  It wasn`t the
blizzard, that came at the end of January.  The numbers on closed February
home sales were based mostly on shoppers in warmer than average December.
That`s why the huge drop even according to realtors was rare.

LAWRENCE YUN, NATIONAL ASSOCIATION OF REALTORS:  We`ll have to consider the
momentum factor.  December was good.  January was good and by that
comparison, it really declined.

OLICK:  Home sales fell 7 percent, to the lowest pace since last November,
when new mortgage rules stalled closing for a month.  It`s not the rules
now, it`s the prices.

YUN:  The buyers are getting to show resistance to increasing prices.  They
are concerned with affordability.

OLICK:  The winter saw near record low supplies of homes for sale
nationwide and now, the usually strong spring housing season is seeing the
same.  That pushed February prices to the highest since 2007, just after
the peak and spring demand is out stripping even a small rise in supply.

LICIA GALINSKY, REAL ESTATE AGENT:  We`re seeing the bidding wars.

D.C. real estate agent Licia Galinsky has two listings on the same block.
She put them on last Wednesday, even before the official open houses
yesterday.

GALINSKY:  As soon as Wednesday hit, we had multiple, multiple people in
both houses.  So, we had, we`ve seen just a lot of buyers coming out at
this point.

UNIDENTIFIED MALE:  So, that`s not a problem.

OLICK:  One potential buyer, Matthew Williams Hamilton, was out within an
inspector by Friday, hoping to win his bid on one of the houses.

MATTHEW WILLIAMS HAMILTON, POTENTIAL HOMEBUYER:  Now I see houses popping
up every Thursday and Friday.  It will be four or five more coming on the
market.  So, that`s nice, but there`s also a lot more buyers.

OLICK:  Spring has up the competition and the bidding wars for what little
there is.  This house will have multiple offers.

HAMILTON:  I expect so, yes.

OLICK:  And will you bid?

HAMILTON:  Yes.

OLICK:  He`ll bid, but he says he will only go so high.  The sky is no
longer the limit for home prices and that making sales lower than expected
this spring.

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

(END VIDEOTAPE)

MATHISEN:  And a new study out today blames homeowners, not home builders,
for the inventory builder shortage.  According to the online real estate
site, Trulia, the price gap between premium and mid level homes is the main
reason for the latest housing crunch, preventing some home buyers from
trading up.  They just can`t afford it.

Anika Kahn is a senior economist at Wells Fargo (NYSE:WFC) Securities and
she joins us now.

Ms. Kahn, welcome.  Good to have you with us.

To the extent that the housing market is ailing, what`s ailing it?

ANIKA KAHN, WELLS FARGO SECURITIES SR. ECONOMIST:  You know, the biggest
concern right now is the low level of inventories.  And, of course, there
are a whole host of reasons why there`s a low level of inventories.  We`ve
already mentioned negative equity.

There are nine million borrows that have less than 20 percent equity in
their home.  There was a lot less new construction at the lower end with a
lot of builders concentrating at the higher end.

HERERA:  And what about credit?  You know, we hear that credit is still
tight in some cases.  That you have to have pristine credit as well if
you`re going to get a loan, and you have to come in with that 20 percent.
Is that still the case?

KAHN:  You know, it was the case very early on in the recovery.  Of course,
those particular households that had pristine credit, they were able to get
loans fairly quickly.  We`re finally starting to see some gradual of easing
of credit conditions for middle income and lower income borrowers.

But the first time home buyers, the millennials are still saddled with
student loan debt which makes it a little more difficult for them.

MATHISEN:  I was intrigued by this study, Anika, out today that indicated
that the mid price house that would be the step up house for the first time
buyer is a little bit out of reach for those first time buyers, and then
beyond that, the mid price owners who wants to trade up to that premium
priced house, those have gotten out of reach as well.  So, you`ve kind of
got a lockdown in place in many markets.

KAHN:  You know, it is market story.  Housing affordability and those
particular markets where labor market conditions increase very solidly.
We`re seeing home prices outpace income.  But as we continue to get later
in the cycle, we`re starting to see some wage and salary gains, which makes
us a little cautiously optimistic.

HERERA:  You mention negative equity.  But if the market is this tight,
home prices have been rising.  How serious is the negative equity problem
in the real estate market right now.  I assume it was much better than it
was at the beginning of the recovery.

KAHN:  Yes, absolutely.  It is much better.  But those particular borrows
that are under equity, meaning they have less than 20 percent, they
represent 18 percent of the market.  And that means that they will be less
inclined to put their property on the market, which goes back into the
lower level of inventories.  That`s just simply one factor that is leading
to the shortage of housing supplies.

MATHISEN:  Thanks for your help tonight — Anika Kahn with Wells Fargo
(NYSE:WFC) Securities.

KAHN:  Thank you.

HERERA:  And still ahead, just when it looked like the Valeant story
couldn`t get more dramatic, it did.

(MUSIC)

MATHISEN:  The Supreme Court will hear Samsung`s appeal in its long-running
patent battle with Apple (NASDAQ:AAPL).  The justices said they would
review that affirmed that Samsung copied Apple`s patented iPhone features.
Samsung has been ordered to pay more than $900 million in damages.

HERERA:  And Apple (NASDAQ:AAPL) made it official.  It unveiled a 4-inch
phone iPhone today, which will be called the iPhone SE.  The device looks
similar to the iPhone 5S, but with newer, powerful technology.  Apple
(NASDAQ:AAPL) is also adding a new iPad to its line up in an effort to
increase sagging tablet sales.  The company is lowering the price of its
Apple (NASDAQ:AAPL) Watch.  The first price cut for the wearable device
introduced last year.

Mr. Cook also addressed his encryption fight with the government.

(BEGIN VIDEO CLIP)

TIM COOK, APPLE CEO:  We believe we have a responsibility to help you
protect your data and protect your privacy.  We owe it to our customers and
we owe it to our country.

(END VIDEO CLIP)

HERERA:  The stock barely budged following just one cent.

MATHISEN:  Well, the drama isn`t over for the drug maker Valeant
Pharmaceuticals.  The CEO just recently back for medical leave is now out.
The billionaire investor will join the board and its chief financial
officer refuses to leave the board.  But the changes are being cheered by
shareholders and the stock went on a 7 percent tear today.

Meg Tirrell has more on the company that is not short on controversy.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Another week, another
wild swing for Valeant pharmaceuticals.  The latest news, the drugmaker
announced a shake up at the top.  CEO Mike Pearson credited with bucking
drug industry trend to build the super-fast growing company through
acquisitions and spending cuts is out.

He will stick around until the company finds a replacement.  Activist
investor Bill Ackman, whose Pershing Square Fund owes a 9 percent stake in
Valeant, is joining the board immediately, helping with the search for a
successor.

But the story focused on another board member.  Former Valeant chief
financial officer Howard Schiller.  Schiller ran Valeant as interim CEO
during Pearson`s two month medical leave of absence and it has retained his
seat on the board.  In a statement and SEC filing today, Valeant accused
Schiller of improper conduct that contributed to the misstatement of its
financial results, and said he declined the board`s request to resign from
his seat.  The board also cited that tone set at the top of the
organization, such as its performance-based environment as a potential
contributor  to the company`s improper revenue recognition.

Schiller responded through his lawyers saying the statement was inaccurate,
that he had no time engaged in improper conduct relating to any statement
of revenue the company is considering, and as such, respectfully declined
the board`s request to resign.  Meanwhile, Valeant confirmed it would file
its annual report with the SEC by April 29th.  Important so it doesn`t trip
in its $30 billion in debt.

And a board investigation into the company`s relationship with the
specialty pharmacy Philidor is ongoing.  The key concern is whether it will
turn up any other surprises.

Much more to come for Valeant over the next month.  Watchers say the best
successor to Pearson would be a seasoned drug industry leader with
turnaround experience.  Analysts are also on the look out for asset sales
Valeant could use to pay down debt faster.  Certainly, the news isn`t over
for this company.

For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.

(END VIDEOTAPE)

HERERA:  Anthem is suing Express (NYSE:EXPR) Scripts.  And that`s where we
begin tonight`s “Market Focus”.

The health insurer alleges that the pharmacy benefit manager overcharge for
prescription drugs.  Anthem is seeking about $15 billion in damages and is
also requesting to terminate its contract with express scripts.  Shares of
Anthem fell almost 2 percent to 140.  Express (NYSE:EXPR) Scripts also fell
a fraction to $69.34.

Shares of Citi got a modest lift after Keefe, Bruyette & Woods called for
the bank to be split into two businesses.  In a note issued just last
night, analysts from KBW (NYSE:KBW) said the move could increase Citi
shareholder value by 57 percent.  Citi ended the day up a tick to $43.60.

MATHISEN:  The agriculture company Monsanto (NYSE:MON) reportedly in talks
now with the chemical producer BASF and the pharmaceutical company Bayer
about potential transactions.  Monsanto (NYSE:MON), interested in acquiring
BASF`s crop science segment, while its talks with Bayer are focused on
joint ventures and unit purchases.  Shares of Monsanto (NYSE:MON) down
nearly 2 percent to $91.31.

It is my favorite company, the specialty retailer Mattress Firm, not to be
confused with firm mattress, missed estimates on both its top and bottom
line.  The company also issued earnings guidance for the year, below
consequence estimates, and will replace its CEO who will become chairman
and get a firm mattress in part of the bargain.  Shares fell in after hours
trading, but they rose during the day.  You can say they firmed up to
$42.69.

HERERA:  Oh, stop.

MATHISEN:  Ouch.

And today marks the tenth anniversary for social media platform Twitter.
Despite changes in management and a push on new features, the company still
faces challenges.  Ten years later, it`s still looking for profit and it
lost 2 million users during the end of 2015.  Shares today flat at $16.89.
But they`ve lost nearly two-thirds of their value over the past year and
are about a third below the initial offering price of $26 back in November
of 2013.

HERERA:  As the presidential campaign heats up, one promise that almost
every candidate makes is creating more manufacturing jobs.  And while
everyone agrees more manufacturing positions would be great, the reality is
creating those jobs isn`t quite that easy.

Phil LeBeau has our story.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  The presidential
candidates have been saying it for months.  They are tired of seeing
Americans lose manufacturing jobs.

DONALD TRUMP (R), PRESIDENTIAL CANDIDATE:  Companies are leaving our
country rapidly, rapidly, whether it`s Carrier air-conditioning, whether
it`s Ford, whether it`s Eaton (NYSE:ETN).  I was in Cleveland, they are
leaving.  So many companies are leaving.

Frankly, I`m disgusted with it, and I`m tired of seeing it and there`s no
reason for it.  It`s just gross incompetence at the highest level.  We
should not allow it to happen.

HILLARY CLINTON (D), PRESIDENTIAL CANDIDATE:  I want companies to know if
they walk out on America, they`re going to pay a price.  And if they ship
jobs overseas, we`re going to make them give back the tax breaks they
receive here at home.

LEBEAU:  But they keep pushing that promise.  Why?  Well, America regained
just half of the 1.7 million manufacturing jobs lost during and immediately
after the last recession.  While many manufacturers have rehired or added
new workers in recent years, they`re plans are far leaner than they used to
be.  That`s because they used more automation, more robotics and not as
many workers.

And for those manufacturers who have moved some production overseas to keep
costs down, bringing those plants back to the U.S. sounds good on paper
until they add up the numbers.

JIM JAMES, IDEAL INDUSTRIES CEO:  I think it`s really hard to think you can
force people back here and still be able to get somebody to buy your
product at a higher cost.  It comes down to, can your customers afford the
price of your product?  That`s really what it comes down to.

LEBEAU:  Ideal Industries like other companies here in the U.S., said it`s
able to keep some manufacturing here in the state by focusing on more
advanced products if they able to sell at a higher price.  It says that is
the key to making a profit when it`s made in the USA.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

MATHISEN:  Coming up, water, we all need it, but the way we get it is in
dire need of major and expensive overhaul.

(MUSIC)

HERERA:  Here`s a look at what the look for tomorrow.  Dow component Nike
(NYSE:NKE) reports earnings after the bell and investors will be watching
to see what the company says about future orders.

The Justice Department and Apple (NASDAQ:AAPL) head to court over the
encrypted iPhone used by one of the San Bernardino Shooters.  President
Obama speaks to the Cuban people in Havana, and that`s what to watch for on
Tuesday.

MATHISEN:  The nation`s two largest daily fantasy sports sites have agreed
to stop taking bets in New York through the end of baseball season, which
of course overlaps with the beginning of football season.  The deal was
announced by that state`s attorney general with both Draft Kings and Fan
Duel.

New York Attorney General Eric Schneiderman sued the companies last year.
He alleges the sites operate games of chance, betting.  The companies say
they host contests based on skill.

HERERA:  You might not have noticed it but you`re paying more for gas.
According to the Lundberg Survey, the average price of a gasoline rose
nearly 25 cents in the past four weeks.  You`ll now pay on average $2.02
per a gallon.  In Newark, New Jersey, they had low price at $1.66.  The
highest was in Los Angeles at $2.72.

The writer of the survey says prices may increase further because U.S.
refiners have to prepare summer gray gasoline and that costs more to make.

MATHISEN:  From water main breaks to lead contamination, America`s pipes
are in bad shape, but fixing them will cost tens of billions of dollars.

Nina Gusovsky reports.

(BEGIN VIDEOTAPE)

DINA GUSOVSKY, NIGHTLY BUSINESS REPORT CORRESPONDENT:  The critical water
situation in Flint, Michigan, continues to make headlines.  But according
to the data we obtained from the Environmental Protection Agency, water
issues in the U.S. go well beyond just Flint.  Out of more than 7,000
schools subject to testing of acceptable EPA lead levels, 431 reported
heightened levels of lead between 2012 to 2015.

But experts say more focus should be placed on how the water is delivered.

CASEY DINGES, AMERICAN SOCIETY OF CIVIL ENGINEERS:  In general, the water
quality in the United States is very high.  The infrastructure that is
conveying that water is in need, serious need of investment right now.  If
we continue on the path that we`re on now and if we do not increase
investment in these areas, we`re putting at risk by 2020, over $400 billion
in U.S. GDP, 700,000 jobs would be in danger and over half a trillion
dollars in personal income would be a risk.

GUSOVSKY:  Here`s what the American Society of Civil Engineers says it will
take to mitigate the issue, as long as utilities, local, state, and federal
governments work together to increase investment in pipes, water treatment
plants and other water infrastructure, they say allocate about $9 billion
per year nationwide over nine years.

So, it would cost about $80 billion in all protecting businesses from
potential losses due to water issues upwards of $150 billion.

Newark, New Jersey is now in the spotlight as well.

JOHN ABEIGON, NEWARK TEACHERS UNION PRESIDENT:  Does it need help?  Yes.
Are we Flint, Michigan?  No, we`re not.  But the Newark public schools are
almost a mini-Flint.  It could be in upwards of $10 million, $20 million if
they`re going to retrofit the plumbing at some of these buildings.  Some of
these buildings are over a century half old.  To maintain all the water
filters in the schools, we estimated it would be approximately a little
over $100,000 a year.

DINGES:  This problem can and should be addressed.  The technologies there,
that`s a good investment for us tonight.

GUSOVSKY:  For NIGHTLY BUSINESS REPORT, I`m Dina Gusovsky.

(END VIDEOTAPE)

HERERA:  And that is 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.  We`ll see you back here tomorrow.

END

Nightly Business Report transcripts and video are available on-line post
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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
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on Nightly Business Report is not and should not be considered as
investment advice. (c) 2016 CNBC, Inc.

 

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