Transcript: Nightly Business Report – October 31, 2016

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Spooky month. Stocks suffer
their worst monthly performance since January. And the week ahead holds several more catalysts                                                                                     investors need to keep an eye on.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Merger mania. General
Electric (NYSE:GE) and Baker Hughes (NYSE:BHI) cap off a record month of
merger activity. Will the deal-making continue and which sectors might see
some action?

HERERA: And a fortune of fright. How one woman turned her love of
Halloween into millions.

All that and more on NIGHTLY BUSINESS REPORT for Monday, October 31st.

MATHISEN: Good evening, everyone. And welcome. And happy Halloween.

OK. So there haven`t been dramatic drops or crashes as in Octobers` past,
but the trading month that just ended a couple hours ago on this Halloween
evening has had its share of spooky moments. Plenty enough to send a chill
down a random spine or a hair to stand up straight on a sensitive
investor`s neck. No, the losses weren`t ghoulish, but the major average
did suffer their worst monthly performances since January, and it could
have been worse if banks and some big tech names hadn`t held their own and
bolstered the performance.

And today, oil did fall to a one month low over uncertainty about an OPEC
production cut.

As for stocks today, not too scary. The Dow dropping a modest 18 points to
18,142, NASDAQ down nearly a point, and the S&P was off just the slightest
fraction.

HERERA: And now to a deal we told you on Friday might happen. General
electric has agreed to combine its oil and gas business with Baker Hughes
(NYSE:BHI) and will create a new publicly traded company which will be
majority-owned by GE. GE shares were essentially flat, but Baker Hughes
(NYSE:BHI) was down 6 percent.

Morgan Brennan has more on the tie-up.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s all about
energy. The new Baker Hughes (NYSE:BHI) will combine the world`s largest
oil field equipment manufacturer, GE, with the number three oiled field
services firm, creating a company with $32 billion in revenue, second only
to rival, Schlumberger (NYSE:SLB). GE will merge with the entirety of
Baker Hughes (NYSE:BHI), a move that will have the industrial giant owning
the majority of the new company without spending tens of billions of
dollars to actually make an acquisition.

Baker Hughes (NYSE:BHI) shareholders will own the rest, with GE raising
more than $7 billion to pay them a one-time special dividend. GE`s oil and
gas chief Lorenzo Simonelli will run the entity, expected by the middle of
next year. CEO Jeff Immelt saying the structure of the deal will have tax
advantages, and will allow for flexibility around capital allocation.

JEFF IMMELT, GE CHAIRMAN AND CEO: Let`s say the industry remains tough.
This is still value accretive to both investors and a tough oil price
environment. If their pricing gets better, it allows us to benefit that
from that, as well. It`s a very diversified portfolio in terms of short
cycle and longer cycle operations. So I think it just gives us a chance to
weather the cycle better.

BRENNAN: The transaction assumes a, quote, “slow recovery” in oil with
prices estimated at $45 to $50 a barrel through 2019. The new company will
be a one stop services shop for everything from fracking to power
generation, establishing a formidable competitor to other oiled field
services giants like Schlumberger (NYSE:SLB), National Oilwell Varco and
Halliburton (NYSE:HAL), which had tried unsuccessfully to buy Baker Hughes
(NYSE:BHI) earlier this year.

It also leverages GE`s big data push through Internet of things technology.
And analysts say it comes at a time when the broader industry has been
engaged in a race to the bottom in terms of pricing.

JOATHAN GARRETT, WOOD MACKENZIE PRINCIPAL ANALYST: If not at the exact
bottom, we`re pretty close. And we spent a lot of time listening and
reading through some of the earnings calls as of late. We have had seven
quarters of margins getting squeezed. It looks like, you know, pricing is
starting to hold.

You know, we`re not seeing meaningful upticks in terms of prices that OFS
can sort of market for their services. But we have certainly not seen them
move meaningfully down from this quarter to the last. So, it looks like
we`re pretty close to that bottom.

BRENNAN: The deal could also spark a flurry of consolidation in oil field
services. As major competitors look to beef up their own offerings with
smaller firms that have been squeezed as service prices plunge. Analysts
say firms with exposure to the Permian Basin where energy activity
continues might be attractive, as well as energy companies with
manufacturing operations like oil states international and fracking-related
operations, such as superior energy and RPC (NYSE:RES).

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

MATHISEN: CenturyLink (NYSE:CTL) will buy level three communications for
$25 billion, sizeable deal here. It expands CenturyLink`s fiber optic
network and high speed data service for corporate clients, also let`s
CenturyLink (NYSE:CTL) better compete with the likes of AT&T (NYSE:T) and
Verizon (NYSE:VZ). Shares of CenturyLink (NYSE:CTL) down sharply off 12.5
percent, but level 3 was up nearly 4 percent.

HERERA: And TeamHealth is going private. Selling itself to private equity
firm, Blackstone, for a little over $6 billion. The hospital staffing
company turned down a $5 billion offer last year from rival AmSurg. Shares
of TeamHealth jumped on the trading session by better than 16 percent.

MATHISEN: And Goldman Sachs (NYSE:GS) reportedly wants Apple (NASDAQ:AAPL)
to get in on Time Warner (NYSE:TWX). “The New York Post” says Goldman is
nudging — that`s banker talk — nudging Apple (NASDAQ:AAPL) to make a bid
on TW. AT&T (NYSE:T) has agreed to buy the media company for $85 billion.
The biggest deal Apple (NASDAQ:AAPL) has ever done so far was in 2014 when
it bought Beats, the speaker and headphone company, for $3 billion.

HERERA: And October has been a record-setting month for M&A deals in the
U.S. The value of announced deals are adding up to about $337 billion,
surpassing the previous high of $82 billion back in January of 2000.

Richard Peterson, senior director at S&P global market intelligence, joins
us now to talk about whether or not this frenzy in M&A is going to
continue.

Good to see you, Richard. Welcome back.

RICHARD PETERSON, S&P GLOBAL MARKET INTELLIGENCE: Hello, Sue. Hello,
Tyler.

HERERA: What do you make of this so far? We have talked a little bit in
the past of why this flurry of activity now. And will it continue?

PETERSON: Well, it`s really a continuation of what has been transpiring
over the past several years. The fact this year in 2016, there`s been over
$1.4 trillion in announced U.S. M&A and marks the fourth consecutive year
of over $1 trillion in deal activity. Last year was a record year, over $2
trillion. And even though there`s been a flurry of deals this month as you
accurately said, October has over $300 billion, our record month. We`re
still down year over year from where we were at this time.

MATHISEN: So is it just coincidence that so many of these deals came
together in this month?

PETERSON: Well, I think it`s — various factors. With Baker Hughes
(NYSE:BHI), they had the merger with Halliburton (NYSE:HAL), which was
called off by regulatory concerns. We are upon GE, stepped in, looking for
ideas. I think a former partnership, I think with Time Warner (NYSE:TWX)
and AT&T (NYSE:T). That`s a factor of the media consolidation and desire
for AT&T (NYSE:T) to own the content, rather than be just a distributor of
the product.

I think if you look at these deals, just the two top deals this month, in
the AT&T (NYSE:T)/Time Warner (NYSE:TWX) deal and British American
Tobacco`s $58 billion purchase, just announced, remaining stakes of
Reynolds America, those two deals count for half the deal value this month.

HERERA: Absolutely. Does it have anything to do with the fact that
interest rates are low, even though the Fed is expected to raise interest
rates once this year, you know, the time before the end of the year is
getting pretty short. So, does that kind of incremental move in interest
rates influence these deals?

PETERSON: I think it`s very marginal, the fact you have companies that are
awash in cash, that even though corporate profits may be flat for this
year, corporate profits still at elevated levels. I think the companies
see their peers make acquisitions, whereupon they`re forced to make
comparable moves. It`s more like a chess board, when rook takes pawn and
bishop wants to take knight and all these variations that go about.

MATHISEN: OK. So, you just teed up the next question. Where next, who
next? More in energy, finance? Health care? What, and who might be
bought or sold?

PETERSON: Well, it`s the usual suspects. That being top sections this
year are consumer discretionary by virtue of media, health care,
information technology and real estate, which is actually the reclassified
sector, which came out of financial earlier this year. I think I look for
probably bigger deals in technology going forward. I think in terms of the
media, we have talked that Comcast (NASDAQ:CMCSA) (NYSE:CCS) may make a
move in light of what AT&T (NYSE:T) did with Time Warner (NYSE:TWX).

And I think also, again in financials, considering what happens with the
election next year, some companies may desire to quickly merge by the
bounce of this year before the change happens in 2017.

HERERA: What does history tell us, if anything at all, about how the
market performs the year following, you know, a quarter of heavy deal-
making?

PETERSON: Sure. I mean, there`s two ways to look at it. We crunched some
numbers at S&P global markets intelligence. You look at the top months for
M&A activity, the following month tend to be negative. So, the top five
months looking at the following month, the average decline over 2 percent.

Conversely, look at the top deals on average, one-year period following
those top deal announcements, the average gain was 9 percent. So, some
good news for the bears and some for the bulls.

HERERA: Thank you, Richard. Appreciate it. Richard Peterson of S&P
global market intelligence.

MATHISEN: Well, October is finished, and as Bill Belichick might say, it`s
on to November. And the first ten days could be nothing short of a Super
Bowl of big data and even bigger decisions.

Bob Pisani has more.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Wall Street is keeping
an eye on a handful of key catalysts this week, starting with the election.
The markets pricing in a Clinton victory with the House remaining
Republican, so any evidence to the contrary could shake things up. Already
for the month, we have seen health care stocks like CardinalHealth and
McKesson (NYSE:MCK) down big-time, thanks to drug pricing concerns.

It`s going to be another busy earnings week ahead with names like Sony
(NYSE:SNE), Pfizer (NYSE:PFE), Facebook (NASDAQ:FB) and Alibaba, all
reporting in the next few days.

We have ended the earnings recession for now. That`s the good news. But
we`re still waiting on 200 more companies to report results. The Federal
Reserve kicks off its two-day meeting on interest rates tomorrow and the
markets are widely expecting them to signal a rate hike in December. But
no major surprises expected when both the Bank of Japan and Bank of England
meet later this week.

Finally, any clues from the widely watched October jobs report on Friday
will help solidify expectations for the Fed even further.

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

(END VIDEOTAPE)

MATHISEN: Another thing the market is intently watching, anything coming
out of the FBI`s investigation into new e-mails related to Hillary
Clinton`s private server.

Eamon Javers is on the case.

What can you tell us, Eamon?

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes. Hi, Tyler.

What we know of as of this evening, FBI officials carefully going through
the e-mails now that they have a warrant in place to search them. They`re
using a software program that sorts out any e-mails that were previously
turned over to the FBI as part of the investigation and looking for
anything that might not have been turned over. If they find any of that,
they`ll look through it and try to figure out whether or not there`s any
classified information in there, as part of this Clinton probe.

We`re also learning a little bit of context here about FBI director, James
Comey`s decision-making to release this information before the election.
I`m told by a former FBI official that this is an extraordinary decision
for Comey to take, in particular because earlier this year, when the FBI
and U.S. intelligence agencies were discussing whether or not to name
Russia as a state entity that was trying to mettle in U.S. elections, Comey
argued internally and privately, it should not be done publicly, because it
was getting too close to the election.

So, my source saying that`s extraordinary, given that he ultimately made
the decision to go forward with the Clinton e-mails on Friday, guys.

HERERA: How fast, though, can they look at these, as we get — ever closer
to the election? Have they made any comment on the speed with which they
can investigate?

JAVERS: The FBI is saying nothing public about this. It`s not even clear
that Director Comey will come out and say anything publicly between now and
the election. But I talked to a former FBI official today who said that
technologically, they can do this in days and have what the source called a
preliminary read on these e-mails and have at least a preliminary
indication of what`s in there.

But whether they will release that preliminary indication to the public
between now and Election Day is really anybody`s guess at this point. One
official telling me that we are in uncharted territory here. This has
simply never happened before at the FBI.

MATHISEN: Do we have a quick count of how many e-mails they`re looking at?

JAVERS: Well, we think the total universe is 650,000. That might be a
meaningless number, though, because there are so many duplicates in their
attachments and spam and other things. The subset that would apply here
would be much, much smaller than that, Tyler.

MATHISEN: Eamon, thank you very much. Eamon Javers in Washington.

HERERA: And straight ahead, why the newest trend in what women are buying
is great news for the housing industry.

(MUSIC)

MATHISEN: Consumer spending rose more than expected last month, spending
did rise a half percent in September, a tenth of a percent more than
estimates. The increase was due in part to the public buying more
automobiles. Personal income also inched higher but by less than expected.
However, Americans did save less last month, amassing nearly $800 billion
down from $820 billion in August.

HERERA: Investors and companies are increasingly looking for business
models that revolve around services. Being dubbed the subscription
economy, analysts are looking at the success of Amazon`s prime service, and
calling for other companies to follow suit.

Mike Santoli takes a look at what subscription bundling means for
investors, and where the benefits and pitfalls may lie.

(BEGIN VIDEOTAPE)

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: One of the hottest
business investing trends is a very old idea — subscriptions. Amazon`s
huge success of its $99 a year prime service has CEOs and investors chasing
similar business models. Software maker Adobe Systems (NASDAQ:ADBE) has
turned to a cloud subscription format in recent years and shares doubled
since 2013, and most other tech giants are trying to follow the same path.
AT&T`s plan purchase of Time Warner (NYSE:TWX) is also a bid for a better
subscription bundle of wireless service and entertainment, and a more
durable with costumers.

All this has led analysts to propose Apple (NASDAQ:AAPL) prime, a package
of an iPhone, iTunes and Apple (NASDAQ:AAPL) TV as a fix for flattening
smartphone sales.

One media consultant has even floated Disney (NYSE:DIS) as a service or pay
one price access to Disney`s entire TV and entertainment output, plus theme
park discounts.

So, what`s behind all of this? Subscription fees means steady revenues and
a sticky relationship directly with customers, with customers attention so
fragmented in the social media age, the cost of locating and acquiring
customers has gone up far faster than the more predictable expense of
delivering a product or service, even many less virtual are being viewed
through the prism of subscriptions. Starbucks (NASDAQ:SBUX) and Dunkin
Brands have pushed sophisticated rewards programs that almost make
subscribers out of their customers for instance. As with any Wall Street
trend, there is a risk this idea will be misapplied to some companies and
taken too far by others.

For now, though, expect to hear more CEOs touting the virtues of
subscriptions.

For NIGHTLY BUSINESS REPORT, I`m Mike Santoli at the New York Stock
Exchange.

(END VIDEOTAPE)

MATHISEN: Nike (NYSE:NKE) gets hit on a stock downgrade and that is where
we begin tonight`s “Market Focus”.

Bank of America (NYSE:BAC), Merrill Lynch cut the Dow component`s rating to
underperform, which is essentially a sell down from neutral, citing an
increase in competition from companies like Adidas and Under Armour
(NYSE:UA). The bank also slashed its price target on Nike (NYSE:NKE) to
$46, down from $55, saying it`s not convinced Nike (NYSE:NKE) has
innovative products in its pipeline. Shares were off 3 1/2 percent to
$50.18.

Cost cuts helped turn energy firm Williams Company turned a profit in the
latest quarter with results exceeding estimates. The company also said its
revenue grew. Even so, Williams` shares finished the day down more than
1.5 percent at $29.20.

The power supplier Southern (NYSE:SO) Company topped analysts` profit
expectations, thanks to higher retail revenue and strong performance in a
company subsidiary. Southern (NYSE:SO) Company also saw its revenue rise.
Shares rose 87 cents to $51.57.

HERERA: Pharmaceutical distributor, CardinalHealth, said drug pricing
pressures caused profit to fall but still, the results managed to surpass
estimates. The company also posted higher than expected sales. However,
Cardinal cut its earnings outlook for the year, citing short term headwinds
in the pharmaceutical business. Shares nonetheless rose 2 percent to
$68.69.

Xerox (NYSE:XRX) says it has reached a settlement with its largest
individual shareholder who we told you sued the copier maker last month,
alleging the company`s plan spinoff violated an existing contract
agreement. Under the settlement, Darwin Deason will be given 300,000
shares in the company`s two businesses. Shares fell marginally to $9.77.

And network equipment maker, Brocade, may be interested in selling itself.
As first reported by Bloomberg, the company is in advanced talks and close
to entering the final stages of a sale process. The potential deal which
could be reached as early as this week has attracted interest from chip
maker Broadcom (NASDAQ:BRCM). Shares soared almost 22 percent to $10.60.

And Valeant Pharmaceuticals isn`t out of the woods quite yet. Bloomberg
said the drug maker`s former CEO and CFOR are being investigated by
authorities regarding potential accounting fraud. The report added the
investigation could lead to charges within weeks. Valiant said it had
previously disclosed that investigation. Valeant shares tanked more than
12 percent on the news to $17.84.

MATHISEN: Wells Fargo (NYSE:WFC) will pay $50 million to settle a lawsuit
accusing the bank of overcharging hundreds of thousands of homeowners for
appraisals that were ordered after they defaulted on their mortgages. The
settlement would resolve claims that Wells Fargo (NYSE:WFC) charged more
than it paid for third-party appraisals. Mortgage agreements do let banks
charge owners who default on their loans for those appraisals. But the
lawsuit says Wells charged up to $125 when their actual cost was $50 or
even less.

HERERA: Traditionally, males and married couples have been the main buyers
of homes. But now, single women are becoming home owners more than men.
In fact, this year females have bought twice as much as their male
counterparts.

Diana Olick has more on this new trend in housing.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Adrienne Nassau just
closed on this three-bedroom home in Maryland. It`s a fixer upper, but she
is looking forward to the project.

ADRIENNE NASSAU, HOME BUYER: I actually think I`m simplifying my life.

OLICK: Nassau, widowed, now 15 years, sold her large family home on the
eastern shore and intends to sell the con low she is living in now in
nearby Bethesda. Even in her retirement, she still thinks ownership is
worth it.

NASSAU: I think when you own, you can do with a house whatever you want.
You can make it your own. You can make whatever improvements you feel
comfortable with.

OLICK: Nassau is one of a growing share of single women in the housing
market. They now make up 17 percent of home buyers, more than twice the
share of single men. This, despite the fact that women still earn less
than men for the same jobs.

NASSAU: There are women in the workplace who earn good money, who are
professionals, and who are independent in their thinking and feel they`re
able to cope with taking on a house.

OLICK: In the past, women had a harder time getting mortgages on their
own, and often had to have someone else cosign the loan. That
discrimination is gone today, but men do tend to have higher credit scores
than women, likely because men make more money.

After living with her daughters for a while and then renting for a year,
68-year-old Barbara Jennai just bought a condo in an age-restricted
community using part of her retirement savings and a reverse mortgage.

BARBARA JENNAI, HOME BUYER: Instead of $1,400, I`m paying $400 a month and
that`s all I`ll have to pay for as long as I live in this condo.

OLICK: Jennai still works full time as a teacher, but her salary was
barely covering the rent. By buying in the same building where she was
renting, Jennai not only saves money, but has something to show for it.

JENNAI: For me, this is the first time that I have ever owned in America
in my life. So I walk in every day, I say, “Hello beautiful home,” it`s
mine.

OLICK: A greeting more and more women are now embracing all on their own.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Chevy Chase, Maryland.

(END VIDEOTAPE)

MATHISEN: Coming up, how giving people a good scare has turned into good
business. That`s next.

(MUSIC)

MATHISEN: Here`s what`s to watch tomorrow, folks.

As we mentioned earlier, the Federal Reserve begins its two-day policy
meeting where it will decide whether or not to raise interest rates. We
get a look at the manufacturing sector when the Institute for Supply
Management releases its October index and the Dow component Pfizer
(NYSE:PFE) will post its latest quarterly results. And that is what to
watch Tuesday.

HERERA: And finally tonight, who wouldn`t want a job they love? Well, one
media pro took her fascination with Halloween to a whole new level,
quitting her day job to make millions in the horror space.

Kate Rogers (NYSE:ROG) bravely takes us to Randall`s Island, New York.

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: For some people, being
terrified is actually fun.

And Melissa Carbone is cashing in.

MELISSA CARBONE, TEN THIRTY ONE PRODUCTIONS: Fear is America`s favorite
drug, like, 100 percent. Fear is actually a real physical reaction.

ROGERS: Oh, I know.

Oh, my gosh. This is a dead end!

The founder of 1031 productions always loved Halloween, but it wasn`t until
she began decorating her own home in Los Angeles years ago that it hit her.
There might be a real business behind scaring people.

CARBONE: I didn`t realize that it was such a thing for me. Trick or
treating and handing out candy wasn`t enough. It kept building for me and
then I realized how much I love the genre.

ROGERS: At the time, she was working in marketing at Clear Channel
worldwide. She and her co-founder, Allison Richards, began saving and
plotting for a large-scale haunted hayride. They drained their life-
savings and raised half a million dollars from friends and family, as well
as their sponsor, Mini Cooper, to launch in L.A. in 2009.

CARBONE: I feel like we have pioneered a whole new industry.

ROGERS: They`re not going to get too close to me, right? See, that`s not
bad. They`re cute.

Ten Thirty One broke even their first year and continued to grow. This is
their second year hosting the New York haunted hayride on Randall`s Island.
The company now has eight attractions from February through November in New
York and California, raking in $3 million last year and securing a $2
million investment from Mark Cuban on “Shark Tank” and another undisclosed
investment from Live Nation along the way.

CARBONE: I get to make a living by building and creating these
environments that people typically would not get to experience. That
people can remember physically and not necessarily mentally.

ROGERS: Hayride attendees will experience a storyline that`s a full year
in the making with more than 100 live actors. Between New York and Los
Angeles, about 130,000 people will attend the event this year. The
scariest part, the blackout maze, even in the daytime.

(SCREAMING)

ROGERS: For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG), trying to
escape from Randall`s Island, New York.

UNIDENTIFIED FEMALE: She just took the emergency —

(END VIDEOTAPE)

HERERA: She`s never going to be the same.

MATHISEN: Kate doesn`t scare easily.

HERERA: She doesn`t, but that was the emergency exit she went out.

That does it tonight for NIGHTLY BUSINESS REPORT tonight. I`m Sue Herera.
Thanks for joining us.

MATHISEN: I`m Tyler Mathisen. Thanks from me as well. Have a great
evening, everybody. Happy Halloween. 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) 2016 CNBC, Inc.

 

This entry was posted in Transcripts. Bookmark the permalink.

Leave a Reply